<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMO INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
3561, 3566,
DELAWARE 3823, 3429 21-0733751
(State or other (Primary Standard
jurisdiction of Industrial
incorporation or Classification Code (I.R.S. Employer
organization) Numbers) Identification Number)
</TABLE>
IMO INDUSTRIES INC.
1009 LENOX DRIVE, BUILDING FOUR WEST
LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-7600
(Name, address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
THOMAS J. BIRD, ESQ.
IMO INDUSTRIES INC.
1009 LENOX DRIVE, BUILDING FOUR WEST
LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH A COPY TO:
RONALD F. DAITZ, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED NOTE PRICE(1) FEE(2)
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11 3/4% Senior Subordinated Notes
due 2006....................... $155,000,000 98.564% $152,774,200 $52,681
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(f)(2).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
------------------------
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
------------------------
<TABLE>
<CAPTION>
ITEM IN FORM S-4 CAPTION IN PROSPECTUS
--------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page, Outside Front Cover Page of
Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover Pages
of Prospectus; Table of Contents;
Available Information; Incorporation of
Certain Documents By Reference.
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; The Com-
pany; Selected Historical Consolidated
Financial Data.
4. Terms of the Transaction..................... Prospectus Summary; The Exchange Offer;
The Company; Description of the Notes;
Certain U.S. Federal Income Tax
Consequences.
5. Pro Forma Financial Information.............. Selected Historical Consolidated Financial
Data.
6. Material Contracts with the Company Being
Acquired..................................... Not applicable.
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters.............................. Not applicable.
8. Interests of Named Experts and Counsel....... Not applicable.
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not applicable.
10. Information with Respect to S-3
Registrants.................................. Prospectus Summary; Recent Developments;
The Company; Capitalization; Selected
Historical Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management.
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents By
Reference.
12. Information with Respect to S-2 or
S-3 Registrants.............................. Not applicable.
13. Incorporation of Certain Information by
Reference.................................... Not applicable.
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants.................. Not applicable.
15. Information with Respect to S-3 Companies.... Not applicable.
16. Information with Respect to S-2 or
S-3 Companies................................ Not applicable.
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................... Not applicable.
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Not applicable.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Management; Security Ownership of Certain
Beneficial Owners and Management.
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 10, 1996
PROSPECTUS
OFFER FOR ALL OUTSTANDING 11 3/4% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR 11 3/4% SENIOR SUBORDINATED NOTES DUE 2006,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS AMENDED
OF
IMO INDUSTRIES INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996, UNLESS EXTENDED.
------------------------
Imo Industries Inc. (the "Company" or "Imo"), a Delaware corporation, hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$155,000,000 of 11 3/4% Senior Subordinated Notes due 2006 (the "New Notes") of
the Company, which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of the issued and
outstanding 11 3/4% Senior Subordinated Notes due 2006 (the "Old Notes") of the
Company from the registered holders thereof (the "Holders"). The terms of the
New Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions relating to the Old Notes. The New Notes will
evidence the same class of debt as the Old Notes and will be issued pursuant to,
and entitled to the benefits of, the Indenture governing the Old Notes (the
"Indenture"). As used herein, the term "Notes" means the Old Notes and the New
Notes, treated as a single class.
Imo will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 5:00 P.M., New York City time, on , 1996 unless
extended (as so extended, the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange pursuant to the Exchange Offer. The Exchange Offer is subject to
certain other customary conditions. See "The Exchange Offer".
On April 29, 1996, the Company issued $155 million principal amount of Old
Notes (the "Offering") pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws.
The Notes are not redeemable prior to May 1, 2001, except that, until May 1,
1999, the Company may redeem, at its option, up to an aggregate of $55 million
of the principal amount of the Notes at the redemption prices set forth herein
plus accrued interest to the date of redemption with the net proceeds of one or
more Public Equity Offerings (as defined) if at least $100 million of the
principal amount of the Notes remains outstanding after each such redemption. On
or after May 1, 2001, the Notes are redeemable at the option of the Company, in
whole or in part, at the redemption prices set forth herein plus accrued
interest to the date of redemption. Upon a Change of Control (as defined), each
holder of Notes may require the Company to repurchase such Notes at 101% of the
principal amount thereof plus accrued interest to the date of repurchase. See
"Description of the Notes".
The New Notes will constitute, and the Old Notes currently constitute,
general unsecured obligations of the Company, but the payment of the principal
of, premium (if any) and interest on the Notes will be subordinate in right of
payment to the prior payment in full of all Specified Senior Indebtedness (as
defined). After giving pro forma effect to the Refinancing (as defined), as of
December 31, 1995, the Company would have had $112.4 million of Specified Senior
Indebtedness outstanding. The New Notes will rank pari passu in right of payment
with all existing and future senior indebtedness of the Company (other than
Specified Senior Indebtedness), including the Old Notes, and senior in right of
payment to all subordinated indebtedness of the Company issued after the date of
the Offering. Contemporaneously with the closing of the Offering, the Company
entered into a new credit agreement with a group of lenders providing for up to
$175 million of loans (the "New Credit Agreement"). The indebtedness incurred
under the New Credit Agreement, refinancings thereof and certain additional
borrowings tied to a borrowing base constitute all the Specified Senior
Indebtedness of the Company.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from April 29, 1996. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC") as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any Holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to engage in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each Holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of such New Notes and has no arrangement
or understanding to participate in a distribution of New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution".
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. In the event
the Company terminates the Exchange Offer and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the Holders
thereof. See "The Exchange Offer".
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes. The
Initial Purchasers (as defined) have advised the Company that they currently
intend to make a market in the New Notes. The Initial Purchasers are not
obligated to do so, however, and any market-making with respect to the New Notes
may be discontinued at any time without notice. The Company does not intend to
apply for listing or quotation of the New Notes on any securities exchange or
stock market.
SEE "RISK FACTORS" ON PAGE 10 OF THIS PROSPECTUS FOR A DESCRIPTION OF
CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE
EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the Company and the New Notes offered hereby,
reference is made to the Registration Statement. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement otherwise filed with the SEC.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
The Registration Statement, the exhibits forming a part thereof and the reports,
proxy statements and other information filed by the Company with the SEC in
accordance with the Exchange Act may be inspected, without charge, at the Public
Reference Section of the SEC located at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of all or any
portion of the material may be obtained from the Public Reference Section of the
SEC upon payment of the prescribed fees. In addition, the Company's common stock
is listed on the New York Stock Exchange and material filed by the Company may
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Company will furnish holders of the New Notes offered hereby with
annual reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year. The Company will also furnish such other reports as it may
determine or as may be required by law. In addition, in the event that the
Company is not required to be subject to the reporting requirements of the
Exchange Act in the future, the Company will be required under the Indenture,
pursuant to which the Old Notes were, and the New Notes will be, issued, to
continue to file with the SEC, and to furnish Holders of the New Notes with, the
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company (File No.
1-9294) with the SEC are incorporated by reference in this Prospectus:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; and
(b) the Company's Current Report on Form 8-K dated April 22, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, on the
written or oral request of such person, a copy of any and all of the documents
referred to above which have been or may be incorporated in this Prospectus by
reference, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference therein. Requests for such copies should
be directed to: Imo Industries Inc., 1009 Lenox Drive, Building Four West,
Lawrenceville, New Jersey, 08648 (telephone number (609) 896-7600), Attention:
Corporate Secretary.
i
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements of
the Company included elsewhere in this Prospectus. References to the business of
the Company refer to the business conducted by the Company (including its
operating divisions) and its wholly owned subsidiaries. Unless otherwise
indicated, industry data contained herein is derived from publicly available
industry trade journals and other publicly available industry sources, which the
Company has not independently verified but which the Company believes to be
reliable.
THE COMPANY
GENERAL
Imo is a diversified multinational corporation that designs, manufactures
and distributes a broad range of engineered industrial products to over 35,000
customers worldwide. With manufacturing plants on four continents, approximately
one-third of the Company's 1995 net sales were generated overseas. The Company
operates through four core business segments:
- POWER TRANSMISSION. The Company produces a wide range of power
transmission and motion control products, including enclosed gear drives,
speed reducers, open gearing components and AC and DC motor controllers.
Imo markets these products principally under the Boston Gear and Fincor
brand names. The Company believes that the segment's emphasis on product
quality, technical assistance and customer service differentiates Imo
from its competitors and allows it to compete effectively in its niche
markets. The Company's ability to make 10:00 a.m. next-day delivery of a
wide variety of Boston Gear products for orders received by 8:00 p.m.
exemplifies its superior customer service.
- PUMPS. The Company believes it is the largest manufacturer of rotary
screw pumps in the world and, according to published industry data, the
IMO brand name is the most recognized brand name for rotary screw pumps.
The Company markets its products, which are used to pump a broad range of
viscous fluids, under both the IMO and Warren brand names. The Company's
pumps (screw, gear and centrifugal) serve a variety of industries,
including naval, commercial marine, power generation, pulp and paper,
elevator, hydrocarbon processing, chemical processing and crude oil.
- INSTRUMENTATION. The Company believes it is a leading manufacturer of a
wide variety of products that perform critical sensing, measurement and
control functions, including level and flow switches, pressure
transducers and liquid level indicators. Imo markets these products
principally under the Gems brand name, which the Company believes is the
most recognized brand name among level and flow switches and liquid level
indicators in North America.
- MORSE CONTROLS. The Company believes it is a leading manufacturer of a
variety of products that position or regulate key control systems of
leisure marine craft and industrial vehicles, including push-pull cable
systems, mechanical, electronic and hydraulic steering systems, and
accelerator, clutch and gear shift controls. Imo markets these products
principally under the Morse, AquaPower and Hynautic brand names.
STRATEGIC REPOSITIONING
After acquiring several diverse businesses in the late 1980's through a
series of debt-financed acquisitions, management in 1992 determined to reduce
debt through the sale of certain businesses. Pursuant to this decision, the
Company divested its Heim Bearings, Aerospace, Barksdale Controls and CEC
Instruments businesses. In September 1993, Donald Farrar joined the Company as
its Chief Executive Officer. Under Mr. Farrar, the Company adopted a strategy to
reposition itself by focusing on its less capital intensive businesses with
market leadership, strong brand name recognition and a broad customer base that
was less dependent on U.S. Government sales. In connection with this strategy,
the Company divested its
1
<PAGE> 6
Turbomachinery business and most of its Electro-Optical Systems business. This
repositioning will be completed upon the sale of the Company's Roltra-Morse
business and the Electronic Systems division of the Company's Electro-Optical
Systems business, each of which is expected to occur in 1996. Since January 1,
1993, after giving effect to the Refinancing, Imo will have reduced its debt by
approximately $180 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Concurrent with the repositioning, the Company initiated a program to
reduce its cost structure by consolidating operations, eliminating duplicative
functions and streamlining operating processes. These efforts, which the Company
intends to continue, have contributed significantly to a reduction in general
and administrative expenses and in the overall number of employees at Imo's core
businesses.
BUSINESS STRATEGY
The Company plans to continue to focus on its four core businesses, each of
which has the benefit of a strong leadership position in one or more niche
markets, high brand recognition, a track record of superior customer service and
responsive technical support, an extensive sales and distribution network and an
established customer base in a broad variety of industries. Having substantially
repositioned the Company and strengthened its balance sheet, management believes
that Imo is well positioned to exploit further its business strengths and to
achieve increased growth and improved profitability. Additionally, the Company
has initiated a new corporate identity program designed to strengthen name
recognition of its four core business segments. Set forth below are the key
elements of the Company's business strategy.
- Concentration on Niche Markets. Each of Imo's core businesses has strong
market positions in selected niche markets. This allows Imo to develop
expertise in its particular markets and in the distinctive needs of
customers in those markets. The Company believes that this expertise,
together with its demonstrated customer service and technical support
capabilities, differentiate Imo from its competitors.
- Consolidation into Focused Business Segments. To improve its current
business performance and position itself to take full advantage of
emerging global opportunities, the Company has consolidated thirteen
previously distinct and independent operating divisions into four focused
business segments. Each segment operates as a strategic global business
unit with a single senior manager accountable for the entire segment's
results, which better positions the Company to cross-sell products across
geographical lines and fully utilize its existing strong sales and
distribution channels.
- Continued Cost Controls. Management is committed to continued
improvement in the Company's cost structure, and Imo's realignment into
four business segments facilitates further cost-cutting measures designed
to improve operating margins.
- Customer Service and Responsiveness. The Company believes it is a market
leader in providing superior customer service and responsiveness. In the
power transmission industry, Imo has distinguished itself with its
ability to ship orders the day they are received. In 1995, approximately
62% of Boston Gear's sales were shipments of orders received that same
day. In addition, the Company's Gems Sensors division offers engineering
support to customize products for thousands of applications. In 1995,
Gems Sensors was able to ship 70% of its orders within 24 hours despite
this exacting process.
- Product Line Extensions and New Product Development. Imo historically
has increased its sales through the development of new products and the
extension of existing products to address new applications. In 1995, Imo
introduced 24 new products and 94 enhanced products for customers in a
broad range of industries. Many of these products were designed in
cooperation with a specific customer and for a new application. With over
150 employees dedicated to research and development and product
engineering, the Company intends to provide its customers with superior
technical support and to continue to develop new and enhanced products
that the Company believes offer attractive expected returns.
2
<PAGE> 7
- Penetration of Emerging Markets. The Company intends to aggressively
market its products in the emerging growth markets of the Pacific Rim and
Latin America. Accordingly, the Company recently opened sales offices in
Singapore and Venezuela and since 1994 has hired five new salespersons
and 13 new distributors to market the Company's products throughout the
Pacific Rim and Latin America.
- Strategic Acquisitions and Alliances. The Company intends to supplement
its internal growth with strategic alliances or acquisitions of products
or businesses that enhance its technological capabilities, expand its
geographical coverage, complement existing product portfolios or can be
leveraged through current sales channels.
The Company's principal executive offices are located at 1009 Lenox Drive,
Lawrenceville, New Jersey 08648. Imo's telephone number is (609) 896-7600.
THE EXCHANGE OFFER
On April 29, 1996, the Company issued $155 million principal amount of Old
Notes. The Old Notes were sold pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. CS First Boston Corporation, Citicorp
Securities, Inc. and Lehman Brothers Inc. (the "Initial Purchasers"), as a
condition to their purchase of the Old Notes, required that the Company agree to
commence the Exchange Offer following the offering of the Old Notes. The New
Notes will evidence the same class of debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture. As used herein, the
term "Notes" means the Old Notes and the New Notes, treated as a single class.
Securities Offered............... Up to $155,000,000 aggregate principal
amount of the Company's 11 3/4% Senior
Subordinated Notes Due 2006, which have
been registered under the Securities Act
(the "New Notes"). The terms of the New
Notes and the Old Notes are identical in
all material respects, except for certain
transfer restrictions relating to the Old
Notes.
The Exchange Offer............... The New Notes are being offered in exchange
for a like principal amount of Old Notes.
The issuance of the New Notes is intended
to satisfy obligations of the Company
contained in the Registration Rights
Agreement, dated April 23, 1996, among the
Company and the Initial Purchasers (the
"Registration Rights Agreement"). For
procedures for tendering the Old Notes
pursuant to the Exchange Offer, see "The
Exchange Offer".
Tenders, Expiration Date;
Withdrawal....................... The Exchange Offer will expire at 5:00
P.M., New York City time, on
, 1996, or such later date
and time to which it is extended (as so
extended, the "Expiration Date"). A tender
of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Old Note not accepted
for exchange for any reason will be
returned without expense to the tendering
Holder thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer.
Federal Income Tax
Consequences..................... The exchange pursuant to the Exchange Offer
should not result in any income, gain or
loss to the holders or the Company for
federal income tax purposes. See "Certain
U.S. Income Tax Consequences."
Use of Proceeds.................. There will be no proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
3
<PAGE> 8
Exchange Agent................... IBJ Schroder Bank & Trust Company is
serving as the Exchange Agent in connection
with the Exchange Offer.
Shelf Registration Statement..... Under certain circumstances described in
the Registration Rights Agreement, certain
holders of Notes (including holders who are
not permitted to participate in the
Exchange Offer or who may not freely resell
New Notes received in the Exchange Offer)
may require the Company to file, and use
best efforts to cause to become effective,
a shelf registration statement under the
Securities Act, which would cover resales
of Notes by such holders. See "Description
of Notes -- Exchange Offer; Registration
Rights".
Conditions to the Exchange
Offer............................ The Exchange Offer is not conditioned on
any minimum principal amount of Old Notes
being tendered for exchange. The Exchange
Offer is subject to certain other customary
conditions, each of which may be waived by
the Company. See "The Exchange Offer --
Conditions".
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes -- Exchange Offer; Registration Rights". Based on interpretations by the
staff of the SEC, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders, other than broker-dealers, have no
arrangement with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution". In addition, to comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register thereunder the New Notes prior to offering or selling such New
Notes. The Company has agreed, pursuant to the Registration Rights Agreement,
subject to certain limitations specified therein, to register or qualify the New
Notes for offer or sale under the securities laws of such jurisdictions as any
holder reasonably requests in writing. Unless a holder so requests, the Company
does not intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "Risk Factors -- Consequences of Failure to Exchange" and
"The Exchange Offer -- Consequences of Exchanging Old Notes".
4
<PAGE> 9
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes. If
the Exchange Offer is not consummated by September 26, 1996, the Notes will bear
additional interest of 0.50% per annum from and including September 26, 1996
until but excluding the date of consummation of the Exchange Offer. The New
Notes will bear interest from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid on the Old Notes, from
April 29, 1996. Accordingly, registered holders of New Notes on the relevant
record date for the first interest payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid,
from April 29, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
Securities Offered............... Up to $155,000,000 aggregate principal
amount of the New Notes.
Maturity Date.................... May 1, 2006.
Interest Payment Dates........... November 1 and May 1 of each year,
commencing November 1, 1996.
Optional Redemption.............. The Notes are not redeemable prior to May
1, 2001, except that, until May 1, 1999,
the Company may redeem, at its option, up
to an aggregate of $55 million of the
principal amount of the Notes at the
redemption price set forth herein plus
accrued interest to the date of redemption
with the net proceeds of one or more Public
Equity Offerings if at least $100 million
of the principal amount of the Notes
remains outstanding after each such
redemption. On or after May 1, 2001, the
Notes are redeemable at the option of the
Company, in whole or in part, at the
redemption prices set forth herein plus
accrued interest to the date of redemption.
See "Description of the Notes -- Optional
Redemption".
Change of Control................ Upon a Change of Control, each Holder of
Notes may require the Company to repurchase
the Notes held by such Holder at 101% of
the principal amount thereof plus accrued
interest to the date of repurchase. See
"Description of the Notes -- Change of
Control".
Ranking.......................... The Old Notes currently constitute, and the
New Notes will constitute, general
unsecured obligations of the Company, but
the payment of the principal of, and
premium (if any) and interest on the Notes
will be subordinate in right of payment to
the prior payment in full of all Specified
Senior Indebtedness. As of December 31,
1995, after giving effect to the
Refinancing, the Company would have had
$112.4 million of Specified Senior
Indebtedness outstanding. The Notes will
rank pari passu in right of payment with
all existing and future senior indebtedness
of the Company (other than Specified Senior
Indebtedness) and senior in right of
payment to all subordinated indebtedness of
the
5
<PAGE> 10
Company issued after the Offering. See
"Description of the Notes -- Ranking".
Restrictive Covenants............ The Indenture limits (a) the incurrence of
additional indebtedness by the Company, (b)
the incurrence of indebtedness and issuance
of preferred stock by the Company's
subsidiaries, (c) the payment of dividends
on capital stock of the Company and the
purchase, redemption or retirement of
capital stock or subordinated indebtedness,
(d) certain transactions with affiliates,
(e) the incurrence of liens, (f) sale and
lease-back transactions, (g) sales of
assets, including capital stock of
subsidiaries and (h) certain consolidations
and mergers. The Indenture also prohibits
certain restrictions on distributions from
subsidiaries. All of these limitations and
prohibitions, however, are subject to a
number of important qualifications. See
"Description of the Notes -- Certain
Covenants".
Use of Proceeds.................. The Company will not receive any proceeds
from the Exchange Offer. The net proceeds
of the Offering, together with certain
proceeds from the initial borrowings under
the New Credit Agreement, were used to
redeem all of the Company's $220 million in
aggregate principal amount of subordinated
debentures (the "Old Debentures") and to
pay related interest, fees and expenses.
The consummation of the Offering and the
application of the net proceeds therefrom
and the initial borrowings under the New
Credit Agreement and the application of the
proceeds therefrom are collectively
referred to herein as the "Refinancing".
Exchange Offer; Registration
Rights........................... Holders of New Notes (other than as set
forth below) are not entitled to any
registration rights with respect to the New
Notes. Pursuant to the Registration Rights
Agreement, the Company has agreed, for the
benefit of the Holders of Old Notes, to
file an exchange offer registration
statement. The Registration Statement of
which this Prospectus is a part constitutes
the exchange offer registration statement
referred to therein. Under certain
circumstances described in the Registration
Rights Agreement, certain Holders of Notes
(including Holders who may not participate
in the Exchange Offer or who may not freely
resell New Notes received in the Exchange
Offer) may require the Company to file, and
use best efforts to cause to become
effective, a shelf registration statement
under the Securities Act, which would cover
resales of Notes by such Holders. See
"Description of the Notes -- Exchange
Offer; Registration Rights".
RISK FACTORS
Holders of the Old Notes should consider carefully the information set
forth under the caption "Risk Factors" and all other information set forth in
this Prospectus.
6
<PAGE> 11
RECENT DEVELOPMENTS
In January 1996, the Company's Board of Directors determined to sell the
Company's Italian-based Roltra-Morse unit, a supplier of latches, door panels,
flexible cable, window controls and other components for automobiles, and the
Company currently is actively pursuing buyers for this business. Accordingly,
the operating results of Roltra-Morse have been segregated from the historical
results of the Company's operations and have been reported as a discontinued
operation in the audited Consolidated Financial Statements of the Company
included elsewhere in this Prospectus. In addition, the remaining operation of
the Company's Electro-Optical Systems business continues to be marketed to
interested parties. See Note 2 to the Consolidated Financial Statements of the
Company for additional information regarding the proposed divestitures and other
recently completed divestitures accounted for as discontinued operations.
On April 18, 1996, the Company reported results for the quarter ended March
31, 1996. The Company reported net income from continuing operations for the
first quarter of 1996 of $2.7 million, compared to $2.6 million in the first
quarter of 1995. The Company's net sales from continuing operations for the
first quarter of 1996 increased to $99.4 million, an increase of 4% from the
first quarter of 1995. Operating income from the Company's four core business
segments was $11.1 million for the first quarter of 1996, an increase of 8% from
the comparable quarter in 1995.
Sales in the Power Transmission segment were $23.7 million for the first
quarter of 1996, a decrease of 9% from the first quarter of 1995. Operating
income in this segment was $2.8 million, compared to $3.6 million in the first
quarter of 1995.
Sales in the Pumps segment were $26.3 million for the first quarter of
1996, an increase of 19% from the first quarter of 1995. Operating income in
this segment was $3.5 million, an increase of 43% from the first quarter of
1995.
Sales in the Instrumentation segment were $19.4 million for the first
quarter of 1996, an increase of 5% from the first quarter of 1995. Operating
income in this segment was $2.1 million, an increase of 25% from the first
quarter of 1995.
Sales in the Morse Controls segment were $30 million for the first quarter
of 1996, an increase of 3% from the first quarter of 1995. Operating income in
this segment was $2.7 million, an increase of 7% from the first quarter of 1995.
Additional financial data and discussion regarding the operating results
for the first quarter of 1996 are contained in the Company's Current Report on
Form 8-K dated April 22, 1996 filed with the SEC, a copy of which can be
obtained as set forth under "Available Information".
7
<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical consolidated financial
data for the Company for each of the fiscal years indicated in the five year
period ended December 31, 1995. The summary historical consolidated financial
data are derived from the audited Consolidated Financial Statements of the
Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991(A) 1992(A) 1993(A) 1994(A) 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Power Transmission............................................... $ 88,255 $ 86,901 $ 85,906 $ 93,308 $ 95,075
Pumps............................................................ 101,929 98,325 91,556 90,428 94,375
Instrumentation.................................................. 80,125 80,110 72,434 72,226 76,113
Morse Controls................................................... 78,816 85,724 90,876 100,075 107,664
-------- -------- -------- -------- --------
Core operations............................................ 349,125 351,060 340,772 356,037 373,227
Other (sold businesses).......................................... 128,913 111,858 75,754 4,748 --
-------- -------- -------- -------- --------
Total net sales............................................ 478,038 462,918 416,526 360,785 373,227
Segment operating income(b):
Power Transmission............................................... 1,031 752 2,588 8,905 11,348
Pumps............................................................ 10,376 8,528 10,866 10,447 9,884
Instrumentation.................................................. 11,295 9,413 8,870 9,791 7,642
Morse Controls................................................... 119 (1,767) 2,807 5,743 6,786
-------- -------- -------- -------- --------
Core operations............................................ 22,821 16,926 25,131 34,886 35,660
Other (sold businesses).......................................... 12,007 7,261 4,986 (216) --
-------- -------- -------- -------- --------
Total segment operating income............................. 34,828 24,187 30,117 34,670 35,660
Corporate expense and equity income(b)............................. (8,856) (9,005) (7,428) (5,120) (5,522)
Unusual items(c)................................................... -- (16,740) (14,338) -- (9,020)
Interest income(d)................................................. 1,445 583 511 1,592 1,980
-------- -------- -------- -------- --------
Income (loss) from continuing operations before interest expense,
taxes, extraordinary item and cumulative accounting change....... 27,417 (975) 8,862 31,142 23,098
Interest expense................................................... (38,390) (38,186) (33,341) (29,168) (25,860)
Net income (loss).................................................. 11,411 (82,590) (270,566) 3,931 29,710
OTHER DATA:
Net sales (core operations):
Sales to non-U.S. government customers........................... $299,934 $309,749 $299,077 $322,241 $348,005
Percent growth (decline)....................................... 3.3% (3.4)% 7.7% 8.0%
Sales to U.S. government customers............................... 49,191 41,311 41,695 33,796 25,222
Percent growth (decline)....................................... (16.0)% 0.9% (18.9)% (25.4)%
-------- -------- -------- -------- --------
Total net sales -- core operations......................... 349,125 351,060 340,772 356,037 373,227
Depreciation and amortization(e)................................... 18,469 18,573 17,536 15,190 14,144
Capital expenditures............................................... 11,341 10,037 6,343 6,025 14,600
EBITDA(f).......................................................... 45,886 17,598 26,398 46,332 37,242
Adjusted EBITDA(g)................................................. 45,886 34,338 40,736 46,332 46,262
Ratio of Adjusted EBITDA to interest expense....................... 1.2x 0.9x 1.2x 1.6x 1.8x
Pro forma interest expense(h)...................................... 27,032
Ratio of Adjusted EBITDA to pro forma interest expense(i).......... 1.7x
Ratio of earnings to fixed charges................................. (j) (j) (j) 1.1x (j)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
AS
ACTUAL ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................................................................... $ 80,977 $ 93,727(k)
Total assets......................................................................... 383,887 397,910(l)
Long-term debt (including current portion)........................................... 246,607 275,758(m)
Shareholders' equity................................................................. 6,884 (1,904)(n)
</TABLE>
8
<PAGE> 13
- ---------------
(a) Reclassified to conform to 1995 presentation.
(b) Excludes unusual items.
(c) Income from continuing operations includes unusual items in 1992, 1993 and
1995 as follows:
<TABLE>
<CAPTION>
1992 1993 1995
----- ----- ----
(IN MILLIONS)
<S> <C> <C> <C>
Restructuring charges...................................................... $ -- $ 5.2 $4.0
Write-down of non-operating assets to net realizable value................. -- 10.1 5.0
Debt related financing fees................................................ -- 5.0 --
Litigation, warranty and claims settlements................................ 16.7 (6.0) --
--- ---- ----
Unusual items...................................................... $16.7 $14.3 $9.0
=== ==== ====
</TABLE>
(d) Interest income for 1995 primarily represents interest earned on the
deferred purchase price of the sale of the Turbomachinery business segment.
Interest on the deferred purchase price will continue to be earned through
2000 (See Note 2 to the audited Consolidated Financial Statements included
elsewhere in this Prospectus). Interest income in 1994 includes interest
earned on proceeds from asset divestitures.
(e) Excludes amortization of deferred financing costs reflected as a component
of interest expense.
(f) EBITDA consists of net income plus income taxes, interest expense,
depreciation and amortization. However, EBITDA excludes (i) income (or loss)
from discontinued operations, (ii) extraordinary item and (iii) cumulative
accounting change. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt. EBITDA
should not be considered by investors as an alternative to operating income,
as an indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity.
(g) Adjusted EBITDA consists of EBITDA plus unusual items.
(h) Pro forma interest expense for the year ended December 31, 1995 gives effect
to the Refinancing as if it had occurred on January 1, 1995. The components
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
AS ADJUSTED
-----------------
(IN THOUSANDS)
<S> <C>
Pro forma interest expense:
New Credit Agreement
Revolving Credit Facility................................................... $ 588
Term Loan A Facility........................................................ 2,000
Term Loan B Facility........................................................ 2,975
Term Loan C Facility........................................................ 3,825
11 3/4% Senior Subordinated Notes Due 2006.................................... 18,213
Amortization of original issue discount on 11 3/4% Senior Subordinated Notes
Due 2006.................................................................... 223
Bank fees..................................................................... 300
Notes payable................................................................. 722
Other......................................................................... 756
-------
29,602
Amortization of deferred loan costs........................................... 1,218
Roltra-Morse.................................................................. 3,103
-------
Gross interest expense........................................................ 33,923
GAAP adjustments for discontinued operations:
Roltra-Morse................................................................ (3,103)
Allocation to discontinued operations....................................... (3,788)
-------
Pro forma interest expense.............................................. $27,032
=================
</TABLE>
The above calculations assume interest rates of 8.0% for the revolving credit
facility and the Term Loan A Facility, 8.5% for the Term Loan B Facility and
the Term Loan C Facility, and 11.75% for the Notes. Pursuant to generally
accepted accounting principles ("GAAP"), interest expense of approximately
$3.8 million was allocated to discontinued operations based on the ratio of
the estimated net assets of discontinued operations to the sum of the
Company's shareholders' equity, if positive, and outstanding debt as of year
end.
(i) The ratio of Adjusted EBITDA to pro forma interest expense is computed
differently than the Consolidated Coverage Ratio (as defined) contained in
the Indenture. On a pro forma basis after giving effect to the Refinancing,
the Consolidated Coverage Ratio would have been 1.5x.
(j) Earnings were insufficient to cover fixed charges in the amounts of $11.6
million, $39.5 million, $24.2 million and $2.6 million in 1991, 1992, 1993
and 1995, respectively.
(k) Adjusted to reflect increase in cash of $6.4 million and a reduction in
accrued interest expense of $6.3 million.
(l) Adjusted to reflect increase in cash of $6.4 million and net increase in
deferred financing fees of $7.6 million.
(m) Adjusted to reflect new borrowings of $267.4 million, net of repayment of
$18.2 million in outstanding borrowings under the Credit Agreement, dated as
of August 5, 1994, as amended (the "Old Credit Agreement"), and the
redemption of $220 million in aggregate principal amount of the Old
Debentures.
(n) Adjusted to reflect extraordinary charge of $8.8 million as a result of the
extinguishment of debt.
9
<PAGE> 14
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information
set forth in this Prospectus and, in particular, should evaluate the following
risks before tendering their Old Notes in the Exchange Offer, although the risk
factors set forth below (other than "-- Consequences of Failure to Exchange")
are generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "Description of the Notes -- Exchange
Offer; Registration Rights". Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course or such holders'
business and such holders, other than broker-dealers, have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the Company or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution". In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified therein,
to register or qualify the New Notes for offer or sale under the securities laws
of such jurisdictions as any holder reasonably requests in writing. Unless a
holder so requests, the Company does not currently intend to register or qualify
the sale of the New Notes in any such jurisdictions. See "The Exchange Offer".
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has outstanding a significant amount of indebtedness relative
to its total capitalization. At December 31, 1995, after giving effect to the
Refinancing, the Company's total pro forma consolidated indebtedness would have
been approximately $285 million and the Company's ratio of total long-term
indebtedness to total capitalization would have been 0.97 to 1.0. See
"Capitalization". This substantial indebtedness will have important consequences
to Holders, including the following: (a) the Company will have significant cash
requirements to service debt (including substantial principal payments required
under
10
<PAGE> 15
the New Credit Agreement beginning in July 1996), reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
Company may be restricted in the future from obtaining additional financing,
whether for capital expenditures, working capital or other general corporate
purposes; (c) the Company will be required to comply with certain financial
covenants and other restrictions contained in the New Credit Agreement and the
Indenture, certain of which become more restrictive with the passage of time;
and (d) to the extent that the Company incurs indebtedness under the New Credit
Agreement, which indebtedness will be at variable rates, the Company will be
vulnerable to increases in interest rates.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company, which
will be subject in part to factors beyond the control of the Company. Although
management believes that the Company's cash flow will be adequate to meet its
interest and principal payment obligations, there can be no assurance that the
Company will generate earnings in the future sufficient to cover its fixed
charges. If the Company is unable to generate earnings in the future sufficient
to cover its fixed charges and is unable to borrow sufficient funds under either
the New Credit Agreement or from other sources, it may be required to refinance
all or a portion of its existing debt (including the Notes) or to sell all or a
portion of its assets. There can be no assurance that a refinancing would be
possible, nor can there be any assurance as to the timing of any asset sales or
the proceeds which the Company could realize therefrom. In addition, the terms
of the New Credit Agreement and the Indenture restrict the Company's ability to
sell assets and the Company's use of the proceeds therefrom. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all of such indebtedness immediately due and payable, including accrued and
unpaid interest, and to terminate their commitments (if any) with respect to
future funding obligations. In addition, such holders could proceed against
their collateral (if any) which, in the case of certain indebtedness, consists
of the common stock of certain subsidiaries of the Company. Any default with
respect to any of the Company's indebtedness could result in a default under
other indebtedness or result in a bankruptcy of the Company. Such defaults could
and any bankruptcy of the Company would result in a default under the Indenture
and could delay or preclude payment of principal of, or interest on, the Notes.
See "-- Ranking of the Notes".
OPERATING LOSSES
For the years ended December 31, 1992 and 1993, the Company suffered losses
from continuing operations of approximately $25 million and $38 million,
respectively. The Company had income from continuing operations of approximately
$.2 million and $12 million (which included a $17 million benefit from a tax
valuation allowance adjustment) for the years ended December 31, 1994 and 1995,
respectively. In addition, in 1995, the Company did not generate sufficient
earnings to meet its interest and principal payments. There can be no assurance
that the Company will not experience losses in the future or be able to generate
earnings in the future sufficient to meet its interest and principal payments.
See "-- Substantial Leverage; Ability to Service Debt" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
RANKING OF THE NOTES
The indebtedness evidenced by the Notes will constitute general unsecured
obligations of the Company, but the payment of the principal of and premium (if
any) and interest on the Notes will be subordinate in right of payment, as set
forth in the Indenture, to the prior payment in full of all Specified Senior
Indebtedness. Specified Senior Indebtedness is defined under "Description of the
Notes -- Certain Definitions", but generally includes only indebtedness under
the New Credit Agreement, refinancings thereof and certain additional borrowings
tied to the amount of the Company's then existing account receivables and
inventory. The principal amount of Specified Senior Indebtedness will be limited
initially to $175 million, will decrease if and when principal payments are made
under the term loan provisions of the New Credit Agreement and may increase to
the extent the borrowing base of the Company and its subsidiaries exceeds $70
million. The Notes will in all respects rank pari passu in right of payment with
all existing and future Senior Indebtedness (as defined) of the Company (other
than Specified Senior Indebtedness) and will be senior in right of payment to
all subordinated indebtedness of the Company issued after the Offering.
11
<PAGE> 16
As of December 31, 1995, after giving pro forma effect to the Refinancing,
the Company's Specified Senior Indebtedness would have been approximately $112.4
million, the Company would have been able to incur an additional $62.6 million
of Specified Senior Indebtedness and the Company's total Senior Indebtedness
(including the Notes) would have been approximately $267.4 million. Although the
Indenture contains limitations on the amount of additional indebtedness that the
Company may incur, the amount of such indebtedness could be substantial under
certain circumstances and, in certain cases, such indebtedness may be secured.
See "Description of the Notes -- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries".
A portion of the operations of the Company are conducted through its
subsidiaries. Claims of creditors of any subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even if such obligations do not constitute
Specified Senior Indebtedness. In addition, the Specified Subsidiaries have
guaranteed all of the obligations of the Company under the New Credit Agreement,
which guarantees are secured by substantially all of the assets of the Specified
Subsidiaries. In certain limited circumstances, the Notes may be guaranteed by
certain future subsidiaries of the Company. Any such guarantees, however, will
be subordinate in right of payment to any Specified Senior Indebtedness of such
subsidiaries. See "Description of the Notes -- Certain Covenants -- Future
Guarantors". At December 31, 1995, and after giving effect to the Refinancing,
the total liabilities of the Company's subsidiaries (other than guarantees by
the Specified Subsidiaries of obligations under the New Credit Agreement) would
have been approximately $116 million, including trade payables. Although the
Indenture limits the incurrence of indebtedness and the issuance of preferred
stock of certain subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by subsidiaries of liabilities that are not
considered indebtedness under the Indenture. See "Description of the
Notes -- Certain Covenants -- Limitation on Indebtedness and Preferred Stock of
Subsidiaries".
In the event of the bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay the Notes only after
all Specified Senior Indebtedness has been paid in full. Sufficient funds may
not exist to pay amounts due on the Notes in such event. In addition, the
subordination provisions of the Indenture provide that no payment may be made
with respect to the Notes during the continuance of a payment default under any
Specified Senior Indebtedness. Furthermore, if certain non-payment defaults
exist with respect to Specified Senior Indebtedness, the holders of such
Specified Senior Indebtedness will be able to prevent payments on the Notes for
certain periods of time. See "Description of the Notes -- Ranking".
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The terms of the Indenture and the New Credit Agreement contain a number of
significant covenants that, among other things, restrict the ability of the
Company to dispose of assets or merge, incur debt, pay dividends, repurchase or
redeem capital stock and indebtedness, create liens, make capital expenditures
and make certain investments or acquisitions, and will otherwise restrict
corporate activities. In addition, the New Credit Agreement contains, among
other covenants, requirements that the Company comply with specified financial
ratios and tests, including a minimum net worth requirement and ratios regarding
the level of indebtedness to earnings, interest coverage and fixed charges. The
ability of the Company to comply with such provisions may be affected by events
beyond the Company's control. The breach of any of these covenants would result
in a default under the New Credit Agreement. In the event of any such default,
depending on the actions taken by the lenders party to the New Credit Agreement
(the "Lenders"), the Lenders could elect to declare all amounts borrowed under
the New Credit Agreement, together with accrued interest and other fees, to be
due and payable, require the Company to apply all the available cash of the
Company to repay such borrowings and collateralize letters of credit issued
under the New Credit Agreement (in which event cash would not be available to
the Company for other purposes) and prevent the Company from making debt service
payments on the Notes. If the Company were unable to repay any such borrowings
when due, the Lenders could proceed against their collateral, which consists of
substantially all of the assets of the Company. If the indebtedness under the
New Credit Agreement were to be accelerated, there can be no assurance that
12
<PAGE> 17
the assets of the Company would be sufficient to repay all indebtedness of the
Company in full. See "Description of the Notes" and "Description of New Credit
Agreement".
LIMITATION ON CHANGE OF CONTROL
The Indenture requires the Company, in the event of a Change of Control, to
make an offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued interest to the date of repurchase. The
New Credit Agreement generally prohibits the Company from repurchasing any Notes
other than pursuant to the Exchange Offer. The New Credit Agreement also
provides that certain change of control events with respect to the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event that a Change of
Control occurs at a time when the Company is prohibited from repurchasing Notes,
the Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance the borrowings that contain such prohibitions. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from repurchasing Notes. The Company's failure to
repurchase tendered Notes at a time when such repurchase is required by the
Indenture would constitute an event of default thereunder which, in turn, would
constitute a default under the New Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
holders of Notes. Finally, there can be no assurance that the Company will have
the financial resources necessary to repurchase the Notes upon a Change of
Control. See "Description of New Credit Agreement" and "Description of the
Notes -- Change of Control".
COMPETITION
Most of the markets in which the Company operates are highly competitive.
The Company believes that design features, product quality, customer service and
price are the principal factors considered by customers in each of the Company's
business segments. Some of the Company's competitors have greater financial
resources, lower costs, superior technology or more favorable operating
conditions than the Company. There can be no assurance that the Company will be
able to compete successfully with its existing or any new competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results or financial condition.
LEGAL PROCEEDINGS
LILCO Litigation. In August 1985, the Company was named as defendant in a
lawsuit filed by Long Island Lighting Company ("LILCO") following the severing
of a crankshaft in a diesel generator sold to LILCO by the Company. LILCO's
complaint contained 11 counts, including counts for breach of warranty,
negligence and fraud, and sought approximately $250 million in damages. In
various decisions from 1986 through 1990, ten of the original 11 counts and
various additional amended counts were dismissed with only the original breach
of warranty count remaining. Thereafter, the trial court entered a judgment
against the Company in the amount of $18.3 million. In September 1993, the
Second Circuit Court of Appeals affirmed the judgment, and in October 1993, the
judgment was satisfied by payment to LILCO of approximately $19.3 million by
International Insurance Company ("International") and Granite State Insurance
Co. ("Granite State"), two of the Company's insurers.
In January 1993, the Company was served with a complaint in a case brought
in the U.S. District Court for the Northern District of California by
International alleging that, among other things, because International's
policies did not cover the matters in question in the LILCO case, it was
entitled to recover $10 million in defense costs previously paid in connection
with such case and $1.2 million of the judgment which was paid on behalf of the
Company. In June 1995, the Court entered a judgment in favor of International,
awarding it $11.2 million, plus interest from March 1995 (the "International
Judgment"). The International Judgment, however, was not supported by an order
and, in July 1995, the Court vacated the International Judgment as being
premature because certain outstanding issues of recoverability of the $10
million in defense costs had not been finally determined. The Company is
awaiting a final decision. If the International Judgment is reinstated, the
Company intends to appeal. If the ultimate outcome of this matter is
unfavorable, the Company will record a charge for the judgment amount plus
accrued interest.
13
<PAGE> 18
In June 1992, the Company filed an action subsequently transferred to the
U.S. District Court, Southern District of New York, that is currently pending
against Granite State in an attempt to collect amounts for defense costs paid to
counsel retained by the Company in defense of the LILCO litigation. After having
reimbursed the Company for $1.7 million in defense costs, Granite State refused
to reimburse the Company for approximately $8.5 million in additional defense
costs paid by the Company, alleging that defense costs above reasonable levels
were expended in defending the LILCO litigation. Granite State subsequently paid
approximately $18 million of the judgment rendered against the Company, thereby
exhausting its $20 million policy. The Company claims that Granite State's
refusal to pay the $8.5 million in additional defense costs was in bad faith and
the Company is entitled to its cost of money and other damages. In a
counterclaim, Granite State is seeking reimbursement of all or part of the $1.7
million in defense costs previously paid by it and has indicated that it may
seek additional damages beyond the reinbursement of defense costs, including
recoupment of approximately $4.0 million of the amount awarded by the jury in
the LILCO litigation (which $4.0 million represents amounts previously paid by
LILCO to the Company for generator repairs and which Granite State had repaid on
behalf of the Company).
Other Litigation. The Company and one of its subsidiaries are two of a
large number of defendants in a number of lawsuits brought by approximately
19,000 claimants as of April 23, 1996 who allege injury caused by exposure to
asbestos. Although neither the Company nor any of its subsidiaries has ever been
a producer or direct supplier of asbestos, the claimants are alleging that the
industrial and marine products sold by the Company and the subsidiary named in
such complaints contained components which contained asbestos. Suits against the
Company and its subsidiary have been tendered to their insurers who are
defending under their stated reservation of rights.
The Company is also a party to several other legal proceedings, including a
federal government investigation regarding quality control, testing and
documentation activities at one of the Company's subsidiaries and environmental
remediation actions under the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA"). See "Business -- Legal Proceedings".
Although the Company believes that it will prevail, has adequate insurance
coverage or has established appropriate reserves to cover potential liabilities
in each of its legal proceedings identified above, the ultimate outcome of any
of these matters, including whether the International Judgment will be
reinstated, is indeterminable at this time. See Note 14 to the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on April 29, 1996 to institutional investors and are eligible
for trading in the Private Offerings, Resale and Trading through Automated
Linkages (PORTAL) Market, the National Association of Securities Dealers'
screenbased, automated market for trading of securities eligible for resale
under Rule 144A under the Securities Act. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for the
remaining untendered Old Notes could be adversely affected. There is no existing
trading market for the New Notes, and there can be no assurance regarding the
future development of a market for the New Notes, or the ability of Holders of
the New Notes to sell their New Notes or the price at which such Holders may be
able to sell their New Notes. If such a market were to develop, the New Notes
could trade at prices that may be higher or lower than their principal amount or
purchase price, depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. Each
Initial Purchaser has advised the Company that it currently intends to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the New Notes may be discontinued
at any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the New Notes or that an active public
market for the New Notes will develop. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on Holders of the New Notes.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995, and as adjusted to give pro forma effect to the Refinancing.
This table should be read in conjunction with the audited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable....................................................... $ 9,019 $ 9,019
Current portion of long-term debt................................... 805 805
-------- --------
Total short-term debt....................................... $ 9,824 $ 9,824
======== ========
Long-term debt, excluding current maturities:
Old Credit Agreement................................................ $ 18,200 $ --
New Credit Agreement(a)............................................. -- 112,351
Debentures.......................................................... 220,000 --
11 3/4% Senior Subordinated Notes Due 2006.......................... -- 155,000
Other bank indebtedness............................................. 7,602 7,602
-------- --------
Total long-term debt, excluding current maturities.......... $245,802 $ 274,953
======== ========
Shareholders' Equity:
Common stock........................................................ $ 18,756 $ 18,756
Additional paid-in capital.......................................... 80,275 80,275
Retained earnings (deficit)......................................... (76,592) (85,380)
Cumulative foreign currency translation adjustments................. 4,266 4,266
Minimum pension liability adjustment................................ (1,801) (1,801)
Treasury stock at cost.............................................. (18,020) (18,020)
-------- --------
Total shareholders' equity (deficit)........................ 6,884 (1,904)
-------- --------
Total capitalization........................................ $262,510 $ 282,873
======== ========
</TABLE>
- ---------------
(a) As of December 31, 1995, on a pro forma basis after giving effect to the
Refinancing, the Company would have had the ability to borrow up to an
additional $62.6 million pursuant to the revolving credit facility contained
in the New Credit Agreement.
15
<PAGE> 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data for the Company for each of the periods in the five year period
ended December 31, 1995. The selected historical consolidated financial data are
derived from the audited Consolidated Financial Statements of the Company. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1991(A) 1992(A) 1993(A) 1994(A) 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Power Transmission................................ $ 88,255 $ 86,901 $ 85,906 $ 93,308 $ 95,075
Pumps............................................. 101,929 98,325 91,556 90,428 94,375
Instrumentation................................... 80,125 80,110 72,434 72,226 76,113
Morse Controls.................................... 78,816 85,724 90,876 100,075 107,664
-------- -------- -------- -------- --------
Core operations............................. 349,125 351,060 340,772 356,037 373,227
Other (sold businesses)........................... 128,913 111,858 75,754 4,748 --
-------- -------- -------- -------- --------
Total sales................................. 478,038 462,918 416,526 360,785 373,227
Segment operating income(b):
Power Transmission................................ 1,031 752 2,588 8,905 11,348
Pumps............................................. 10,376 8,528 10,866 10,447 9,884
Instrumentation................................... 11,295 9,413 8,870 9,791 7,642
Morse Controls.................................... 119 (1,767) 2,807 5,743 6,786
-------- -------- -------- -------- --------
Core operations............................. 22,821 16,926 25,131 34,886 35,660
Other (sold businesses)........................... 12,007 7,261 4,986 (216) --
-------- -------- -------- -------- --------
Total segment operating income.............. 34,828 24,187 30,117 34,670 35,660
Corporate expense and equity income(b).............. (8,856) (9,005) (7,428) (5,120) (5,522)
Unusual items(c).................................... -- (16,740) (14,338) -- (9,020)
Interest income(d).................................. 1,445 583 511 1,592 1,980
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
interest expense, taxes and extraordinary item.... 27,417 (975) 8,862 31,142 23,098
Interest expense.................................... (38,390) (38,186) (33,341) (29,168) (25,860)
Tax (expense) benefit............................... 4,103 14,315 (13,450) (1,790) 14,791
-------- -------- -------- -------- --------
Income (loss) from continuing operations before
extraordinary item and cumulative accounting
change............................................ (6,870) (24,846) (37,929) 184 12,029
Extraordinary item.................................. -- -- (18,095) (5,299) (4,444)
Cumulative accounting change........................ -- (27,590) -- -- --
Extraordinary and other items....................... -- (27,590) (18,095) (5,299) (4,444)
Total Income (loss) from discontinued operations.... 18,281 (30,154) (214,542) 9,046 22,125
-------- -------- -------- -------- --------
Net income (loss)................................... $ 11,411 $ (82,590) $(270,566) $ 3,931 $ 29,710
======== ======== ======== ======== ========
STOCK DATA:
Weighted average common shares outstanding........ 16,811.3 16,869.4 16,890.5 16,926.1 17,048.6
Common shares outstanding at end of period........ 16,867.2 16,881.3 16,911.3 17,007.6 17,083.6
Income from continuing operations before
extraordinary item per common share............. (0.41) (1.47) (2.25) 0.01 0.71
Cash dividends per share.......................... 0.50 0.375 -- -- --
Book value per share.............................. 19.7 14.2 (2.0) (1.5) 0.4
OTHER DATA:
Net sales (core operations):
Sales to non-U.S. government customers............ $ 299,934 $ 309,749 $ 299,077 $ 322,241 $ 348,005
Percent growth (decline)........................ 3.3% (3.4)% 7.7% 8.0%
Sales to U.S. government customers................ 49,191 41,311 41,695 33,796 25,222
Percent growth (decline)........................ (16.0)% 0.9% (18.9)% (25.4)%
-------- -------- -------- -------- --------
Total net sales -- core operations.......... 349,125 351,060 340,772 356,037 373,227
Depreciation and Amortization(e).................... 18,469 18,573 17,536 15,190 14,144
Capital expenditures................................ 11,341 10,037 6,343 6,025 14,600
EBITDA(f)........................................... 45,886 17,598 26,398 46,332 37,242
Adjusted EBITDA(g).................................. 45,886 34,338 40,736 46,332 46,262
Ratio of Adjusted EBITDA to interest expense........ 1.2x 0.9x 1.2x 1.6x 1.8x
Pro forma interest expense(h)....................... 27,032
Ratio of Adjusted EBITDA to pro forma interest
expense(i)........................................ 1.7x
Ratio of earnings to fixed charges.................. (j) (j) (j) 1.1x (j)
</TABLE>
(footnotes appear on the following page)
16
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
AS
ACTUAL ADJUSTED
----------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................................................ $ 80,977 $ 93,727(k)
Total assets............................................................... 383,887 397,910(l)
Long-term debt (including current portion)................................. 246,607 275,758(m)
Shareholders' equity....................................................... 6,884 (1,904)(n)
</TABLE>
- ---------------
(a) Reclassified to conform to 1995 presentation.
(b) Excludes unusual items.
(c) Income from continuing operations includes unusual items in 1992, 1993 and
1995 as follows:
<TABLE>
<CAPTION>
1992 1993 1995
----- ----- ----
(IN MILLIONS)
<S> <C> <C> <C>
Restructuring charges.......................................................... $ -- $ 5.2 $4.0
Write-down of non-operating assets to net realizable value..................... -- 10.1 5.0
Debt related financing fees.................................................... -- 5.0 --
Litigation, warranty and claims settlements.................................... 16.7 (6.0) --
--- ---- ----
Unusual items.......................................................... $16.7 $14.3 $9.0
=== ==== ====
</TABLE>
(d) Interest income for 1995 primarily represents interest earned on the
deferred purchase price of the sale of the Turbomachinery business segment.
Interest on the deferred purchase price will continue to be earned through
2000 (See Note 2 to the audited Consolidated Financial Statements included
elsewhere in this Prospectus). Interest income in 1994 represents interest
earned on proceeds from asset divestitures.
(e) Excludes amortization of deferred financing costs reflected as a component
of interest expense.
(f) EBITDA consists of net income plus income taxes, interest expense,
depreciation and amortization. However, EBITDA excludes (i) income (or loss)
from discontinued operations, (ii) extraordinary item and (iii) cumulative
accounting change. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt. EBITDA
should not be considered by investors as an alternative to operating income,
as an indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity.
(g) Adjusted EBITDA consists of EBITDA plus unusual items.
(h) Pro forma interest expense for the year ended December 31, 1995 gives effect
to the Refinancing as if it had occurred on January 1, 1995. The components
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
AS ADJUSTED
-----------------
(IN THOUSANDS)
<S> <C>
Pro forma interest expense:
New Credit Agreement
Revolving Credit Facility................................................... $ 588
Term Loan A Facility........................................................ 2,000
Term Loan B Facility........................................................ 2,975
Term Loan C Facility........................................................ 3,825
11 3/4% Senior Subordinated Notes Due 2006.................................... 18,213
Amortization of original issue discount on 11 3/4% Senior Subordinated Notes
Due 2006.................................................................... 223
Bank fees..................................................................... 300
Notes payable................................................................. 722
Other......................................................................... 756
-------
29,602
Amortization of deferred financing costs...................................... 1,218
Roltra-Morse.................................................................. 3,103
-------
Gross interest expense........................................................ 33,923
GAAP adjustments for discontinued operations:
Roltra-Morse.................................................................. (3,103)
Allocation to discontinued operations......................................... (3,788)
-------
Pro forma interest expense.............................................. $27,032
=================
</TABLE>
The above calculations assume interest rates of 8.0% for the revolving
credit facility and the Term Loan A Facility, 8.5% for the Term Loan B
Facility and the Term Loan C Facility, and 11.75% for the Notes. Pursuant to
GAAP, interest expense of approximately $3.8 million was allocated to
discontinued operations based on the ratio of the estimated net assets of
discontinued operations to the sum of the Company's shareholders' equity, if
positive, and outstanding debt as of year end.
(i) The ratio of Adjusted EBITDA to pro forma interest expense is computed
differently than the Consolidated Coverage Ratio contained in the Indenture.
On a pro forma basis after giving effect to the Refinancing, the
Consolidated Coverage Ratio would have been 1.5x.
(j) Earnings were insufficient to cover fixed charges in the amounts of $11.6
million, $39.5 million, $24.2 million and $2.6 million in 1991, 1992, 1993
and 1995, respectively.
(k) Adjusted to reflect increase in cash of $6.4 million and a reduction in
accrued interest expense of $6.3 million.
(l) Adjusted to reflect increase in cash of $6.4 million and net increase in
deferred financing fees of $7.6 million.
(m) Adjusted to reflect new borrowings of $267.4 million, net of repayment of
$18.2 million in outstanding borrowings under the Old Credit Agreement and
the redemption of $220 million in aggregate principal amount of the Old
Debentures.
(n) Adjusted to reflect extraordinary charge of $8.8 million as a result of the
extinguishment of debt.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated results
of operations and financial condition should be read in conjunction with the
audited Consolidated Financial Statements included elsewhere in this Prospectus.
OVERVIEW
In October 1992, the Company determined that it needed to delever its
balance sheet through the sale of certain businesses and the application of the
proceeds from the divestitures to reduce debt. Pursuant to this decision, the
Company divested its Heim Bearings, Aerospace, Barksdale Controls and CEC
Instruments businesses. See "-- Liquidity and Capital Resources". In 1993,
management, under Donald K. Farrar, who became Chief Executive Officer in
September 1993, initiated a strategy to reposition the Company to focus on its
less capital intensive businesses that exhibited strong brand name recognition,
a broad customer base and market leadership with less dependence on U.S.
Government sales. In connection with this strategy, the Company divested its
Turbomachinery and most of its Electro-Optical Systems businesses. This
repositioning will be completed upon the sale of the Roltra-Morse business, the
remaining portion of the Electro-Optical Systems business and certain
non-operating real estate. See "-- Remaining Asset Sales". The Company's
continuing businesses are now grouped into four core business segments for
management and segment reporting purposes: Power Transmission, Pumps,
Instrumentation and Morse Controls. Previously, the Power Transmission, Pumps
and the Instrumentation business segments were all included in a single business
segment and the Morse Controls business segment included the Roltra-Morse
business.
1995 Asset Sales
Electro-Optical Systems. In January 1994, the Company announced a plan to
sell its Electro-Optical Systems business. On January 3, 1995, the Company
completed the sale of the Analytical Instruments division of its wholly owned
subsidiary, Baird Corporation ("Baird"), for $12.3 million in cash, the proceeds
of which were used to reduce outstanding amounts under the Old Credit Agreement.
On June 2, 1995, the Company completed the sale of the Optical Systems and
Ni-Tec divisions of its wholly owned subsidiary, Varo, Inc. ("Varo"), and the
Optical Systems division of Baird for $50 million in cash, the proceeds of which
were used to redeem $40 million in aggregate principal amount of the 12.25%
Debentures and to reduce outstanding amounts under the Old Credit Agreement. In
the second half of 1995, the Company recorded provisions totaling $13.3 million
related to the Electro-Optical Systems business, $6.8 million of which was
recorded in the third quarter related to the resolution of contingencies
associated with such divisions' sales, and $6.5 million of which was recorded in
the fourth quarter related primarily to write-downs of remaining non-operating
real estate to estimated fair market value.
Turbomachinery. On January 17, 1995, the Company completed the sale of its
Delaval Turbine and TurboCare divisions, which comprised substantially all of
the Company's former Turbomachinery business segment, and its 50% interest in
Delaval-Stork, a Dutch joint venture. The final adjusted purchase price was $119
million, of which the Company received $109 million in cash at closing, with the
balance earning interest until it is received at specified future contract
dates, subject to adjustment as provided in the agreement. It is management's
expectation that there will be no further adjustment to the purchase price. The
proceeds from this sale were used to repay in full term and bridge loans
outstanding under the Old Credit Agreement and to redeem $40 million in
aggregate principal amount of the 12.25% Debentures. In the fourth quarter of
1995, the Company recorded a provision of $4.6 million related primarily to the
resolution of contingencies associated with this sale. The fourth quarter
provision partially offset the after-tax gain of $39.6 million recorded in the
first quarter of 1995, bringing the net gain on these sales to $35.0 million.
18
<PAGE> 23
Remaining Asset Sales
The remaining operation of the Company's Electro-Optical Systems business,
which is Varo's Electronic Systems division, continues to be marketed to
interested parties. The Company expects to complete the sale of this business in
1996 and plans to use the proceeds to reduce debt.
In February 1996, the Company announced its intention to sell its
Roltra-Morse business. The Company expects to complete the sale of this business
in 1996 for proceeds in excess of net book value and plans to use the proceeds
to reduce debt.
Other non-operating real estate, representing less than 10% of the original
value of assets announced to be sold in October 1992, remain for sale. Results
for the fourth quarter of 1995 include an unusual charge of $5.0 million related
to the write-down of this non-operating real estate to its net realizable value.
Cost Reduction Programs
In the fourth quarter of 1995, the Company recorded a charge to continuing
operations of $4.0 million, including severance and other expenses related to a
Company-wide program to reduce general and administrative costs. This program
includes a reduction of 65 employees, or 2% of the total number of Company
employees, including a reduction of the corporate headquarters staff by 20%.
This program is expected to reduce general and administrative expenses by
approximately $2.9 million in 1996, $4.0 million in 1997 and $5.0 million
annually thereafter. The required cash outlay related to this program was $.4
million in 1995, and the expected cash requirements during 1996 are $3.2
million. The remainder of the charges represents non-cash charges.
In 1993, the Company recorded a charge to continuing operations of $5.2
million for a cost reduction program which benefited 1994 and 1995 operating
results. Following Mr. Farrar's joining as Chief Executive Officer, the Company
implemented cost-cutting measures at its core operations to reduce its expense
structure and to eliminate duplicative functions. In addition, in connection
with this 1993 cost reduction program, the Company consolidated certain
operations in its European Instrumentation and Morse Controls businesses and
revised operating processes and reduced employment levels at its Pumps segment
and other operations. The number of Company employees in core operations
declined by 205, or 7%, between mid-1993 and mid-1994. These organizational
restructuring measures have been providing net cash benefits, compared to 1993
levels, which approximated $4.5 million and $1.5 million for continuing
operations in 1995 and 1994, respectively, and are expected to approximate $5.5
million annually thereafter, based largely on reduced employment costs.
RESULTS OF OPERATIONS
The Electro-Optical, Turbomachinery and Roltra-Morse businesses are
accounted for as discontinued operations. Accordingly, their operating results
have been segregated and reported as Discontinued Operations in the audited
Consolidated Financial Statements included elsewhere in this Prospectus.
Financial results prior to 1995 have been reclassified to conform to current
year presentation.
1995 Compared to 1994
Sales. Net sales from continuing operations in 1995 were $373.2 million,
compared with $360.8 million in 1994. Sales from core operations (excluding
operations sold in 1994 that were not accounted for as discontinued operations)
increased 4.8% in 1995 compared with the 1994 level of $356.0 million. All sales
in 1995 were from core operations. Each of the Company's four core business
segments contributed to this increase. See "-- Segment Operating Results" below.
Gross Profit. The gross profit in 1995 remained relatively constant at
30.8% of sales compared with 31.0% in 1994. See "-- Segment Operating Results"
below.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.0 million, or 3.8%, in 1995 over the 1994
level. As a percent of sales, selling, general and administrative expenses
remained relatively constant at 21.7% in 1995 compared with 21.6% in 1994. While
the Company
19
<PAGE> 24
benefited in 1995 from a full year of savings from the 1993 cost reduction
program implemented during 1994, a portion of these savings were offset by the
Instrumentation segment's efforts to expand marketing of transducer products in
the United States and Gems products in Europe, as well as to increase sales in
the Far East markets. Research and development expenditures were 1.3% of sales
in both 1995 and 1994.
Interest Expense. Average borrowings in 1995 were approximately $120
million lower than in 1994. As a result, total interest expense (before
allocation to discontinued operations) of $36.4 million in 1995 was $15.3
million, or 30%, less than in 1994. Interest expense for continuing operations
excludes interest expense incurred by the discontinued operations of $3.0
million and $3.1 million in 1995 and 1994, respectively, as well as an interest
allocation to the discontinued operations. Interest allocated to discontinued
operations was $7.5 million in 1995 and $19.4 million in 1994.
<TABLE>
<CAPTION>
1994 1995
----- -----
(IN MILLIONS)
<S> <C> <C>
Total (before allocations to discontinued operations)........ $51.7 $36.4
Continuing operations........................................ 29.2 25.9
</TABLE>
Income from Continuing Operations. The Company had income from continuing
operations of $12.0 million, or $.71 per share, in 1995, which included unusual
charges of $9.0 million and a deferred tax benefit of $17.0 million. In 1994,
income from continuing operations was $.2 million, or $.01 per share. See
"-- Other Operating Results" for a discussion regarding Unusual Items and
Provision for Income Taxes.
Income (Loss) from Discontinued Operations. The Company had income from
discontinued operations of $22.1 million (net of income tax expense of $6.1
million), or $1.29 per share, in 1995 as compared to income of $9.0 million (net
of income tax expense of $1.4 million), or $.53 per share, in 1994. The income
recorded in 1995 includes an aggregate net gain of $21.6 million on the sale of
the Company's former Turbomachinery business and substantially all of its former
Electro-Optical Systems business. The Company retained certain liabilities upon
the sales of the Electro-Optical Systems and Turbomachinery businesses of
approximately $16.0 million and $25.0 million, respectively. In 1995, required
cash outlays of the Company were $5.7 million and $14.1 million, and expected
1996 cash requirements are approximately $7.0 million and $5.5 million, related
to the Electro-Optical Systems and Turbomachinery sales, respectively. Results
from operations for the discontinued operations include allocations for interest
of $7.5 million and $19.4 million for 1995 and 1994, respectively.
Net Income. Net income in 1995 was $29.7 million compared with $3.9
million in 1994. Net income per share in 1995 was $1.74 compared with a net
income per share of $.23 in 1994. Net income (loss) per share by component for
each year is summarized below:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Continuing operations before extraordinary item.............. $ .01 $ .71
Discontinued operations...................................... .53 1.29
Extraordinary item........................................... (.31) (.26)
----- -----
Net income................................................... $ .23 $1.74
===== =====
</TABLE>
1994 Compared to 1993
Sales. Net sales from continuing operations in 1994 were $360.8 million,
compared with $416.5 million in 1993. Sales from core operations (excluding
operations sold in 1994 and 1993 that were not accounted for as discontinued
operations) were $356.0 million in 1994 compared with $340.8 million in 1993, an
increase of 4.5%. Sales in the Power Transmission and Morse Controls business
segments increased 8.6% and 10.1%, respectively, in 1994 compared with 1993.
Sales in the Pumps and the Instrumentation business segments in 1994 remained
near 1993 levels. See "-- Segment Operating Results" below.
Gross Profit. The gross profit margin in 1994 decreased slightly to 31.0%
of sales compared with 31.8% in 1993. See "-- Segment Operating Results" below.
20
<PAGE> 25
Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined $24.9 million, or 24.2%, in 1994 from the 1993
level, with most of the decline attributable to businesses sold subsequent to
June 30, 1993, the phase-out of certain postretirement benefit subsidies in
1994, and lower levels of general and administrative staff in 1994 as a result
of the 1993 cost reduction plan. As a percent of sales, selling, general and
administrative expenses decreased to 21.6% in 1994 compared with 24.7% in 1993.
Research and development expenditures were 1.3% of sales in 1994 compared with
1.8% in 1993.
Interest Expense. Average borrowings in 1994 were approximately $50
million lower than in 1993. As a result, total interest expense (before
allocation to discontinued operations) of $51.7 million in 1994 was $5.5
million, or 10%, less than in 1993. Interest expense for continuing operations
excludes interest expense incurred by discontinued operations of $3.1 million
and $4.3 million in 1994 and 1993, respectively, as well as an interest
allocation to discontinued operations of $19.4 million in 1994 and $19.6 million
in 1993.
<TABLE>
<CAPTION>
1993 1994
----- -----
(IN MILLIONS)
<S> <C> <C>
Total (before allocations to discontinued operations)........ $57.2 $51.7
Continuing operations........................................ 33.3 29.2
</TABLE>
Income (Loss) from Continuing Operations. The Company had income from
continuing operations of $.2 million, or $.01 per share, in 1994. In 1993, loss
from continuing operations was $37.9 million, or $2.25 per share, primarily as a
result of the net unusual charges of $14.3 million and a $13.5 million tax
reserve provided against previously recorded future tax benefits. See "-- Other
Operating Results" for discussion regarding Unusual Items and Provision for
Income Taxes.
Income (Loss) from Discontinued Operations. The Company had income from
discontinued operations of $9.0 million (net of income tax expense of $1.4
million), or $.53 per share, in 1994 as compared to a net loss of $214.5 million
(including income tax expense of $1.5 million), or $12.70 per share, in 1993.
The loss recorded in 1993 includes an estimated loss on the disposal of the
Company's Electro-Optical Systems business of $168.0 million, most of which
represented a non-cash adjustment to reduce the carrying value of assets to
estimated realizable value. Of the total estimated loss on disposal recorded in
1993, required cash outlays were approximately $8.4 million and $4.6 million in
1995 and 1994, respectively, the remainder of which represented non-cash
charges. Results from operations for the discontinued operations include
allocations for interest of $19.4 million and $19.6 million for 1994 and 1993,
respectively.
Net Income (Loss). Net income in 1994 was $3.9 million compared with a net
loss of $270.6 million in 1993. Net income per share in 1994 was $.23 compared
with a net loss per share of $16.02 in 1993. Net income (loss) per share by
component for each of the periods is summarized below:
<TABLE>
<CAPTION>
1993 1994
------- -----
<S> <C> <C>
Continuing operations before extraordinary item............ $ (2.25) $ .01
Discontinued operations.................................... (12.70) .53
Extraordinary item......................................... (1.07) (.31)
------
-
-----
Net income (loss).......................................... $(16.02) $ .23
===== =======
</TABLE>
Other Operating Results
Unusual Items. During the fourth quarter of 1995, the Company recognized
unusual charges of $9.0 million in income from continuing operations. These
charges include $4.0 million in severance benefits and other expenses related to
a Company-wide program to reduce general and administrative costs ($.9 million
included in the Instrumentation segment, $1.5 million included in the Morse
Controls segment and $1.6 million included in Corporate Expense), and $5.0
million related to the write-down of non-operating real estate to net realizable
value (included in Corporate Expense). Of the $9.0 million of unusual charges,
the required cash outlay in 1995 was $.4 million and the expected cash
requirements during 1996 are $3.2 million. The remainder represents non-cash
charges. There were no unusual items in 1994.
21
<PAGE> 26
During the twelve months ended December 31, 1993, the Company recognized
unusual charges of $14.3 million in loss from continuing operations. During the
fourth quarter of 1993, the Company recognized charges of $20.3 million that
include provisions of $5.2 million related to the restructuring and
consolidation of certain of the Company's operating units ($.2 million, $.5
million, $.9 million, $2.4 million and $1.2 million, included in the Power
Transmission, Pumps, Instrumentation and Morse Controls segments and Corporate
Expense, respectively), $10.1 million expected net loss overall related to the
Company's asset divestiture program (included in a non-core segment entitled
"Other") and $5.0 million in debt-related financing fees (included in Corporate
Expense). These charges are net of unusual income of $6.0 million recorded in
the third quarter of 1993 as a result of a change in estimate related to legal
costs associated with pending litigation (included in the Other segment). Of the
$20.3 million of unusual charges, required cash outlays were approximately $1.3
million, $7.1 million, and $.2 million in 1995, 1994 and 1993, respectively,
with the remainder representing non-cash charges.
Extraordinary Items. The twelve months ended December 31, 1995 include an
extraordinary charge of $4.4 million after-tax, representing charges related to
the early extinguishment of portions of its debt under the Existing Credit
Agreement and the 12.25% Debentures.
The twelve months ended December 31, 1994 include an extraordinary charge
of $5.3 million after-tax, representing fees and charges related to
extinguishment of debt in connection with the restructuring of the Company's
credit facilities in August 1994.
The results of operations for the twelve months ended December 31, 1993
included an extraordinary item of $18.1 million, representing fees and expenses
related to extinguishment of senior debt of which approximately $4.0 million
required immediate cash outlays, approximately $2.0 million related to the
write-off of previously deferred debt expense and approximately $12.0 million
was provided as an estimate for the prepayment of its senior notes.
Additionally, approximately $4.0 million of fees related to the 1993
restructuring of the Company's credit facilities were paid in 1993. This amount
was being amortized until August 1994, at which time the balance was recognized
as an extraordinary charge in connection with the extinguishment of the
restructured credit facilities.
Provision for Income Taxes. Income tax expense (benefit) from continuing
operations was a benefit of $(14.8) million for 1995, and expense of $1.8
million and $13.5 million for 1994 and 1993, respectively. The 1995 amount is
comprised of current tax expense of $2.2 million representing foreign and state
income taxes, as the Company is utilizing existing U.S. net operating loss
carryforwards on its domestic earnings. This amount is offset by a deferred tax
benefit in 1995 of $(17.0) million, representing a reduction in the deferred tax
valuation allowance against U.S. net operating loss carryforwards.
The 1994 income tax expense represents foreign and state income taxes. The
1993 amount is principally comprised of the provision of a reserve against
previously recorded tax benefits. The Company did not record a benefit for the
1993 loss as a valuation allowance was established in accordance with the
provisions of FASB Statement No. 109, "Accounting for Income Taxes". The Company
is recognizing these benefits only as reassessment demonstrates that it is more
likely than not that they will be realized. This reassessment was the basis for
the benefit of $(17.0) million recognized in 1995.
The Company has a net operating loss carryforward of approximately $85.0
million expiring in years 2002 through 2010, foreign tax credit carryforwards of
approximately $8.3 million expiring through 2000, and minimum tax credits of
approximately $2.1 million which may be carried forward indefinitely. These
carryforwards are available to offset future taxable income. These existing tax
loss carryforwards will allow the Company's future earnings to be essentially
free from the payment of U.S. taxes for the foreseeable future.
Taxes have not been provided on the unremitted earnings of foreign
subsidiaries, since it is the Company's intention to indefinitely reinvest these
earnings overseas. The amount of foreign withholding taxes that would be payable
on remittance of these earnings is approximately $.9 million.
Retiree Medical and Life Insurance. In March 1994, the Company amended its
policy regarding retiree medical and life insurance plans. This amendment, which
affects some current retirees and all future retirees, phases out the Company
subsidy for retiree medical and life insurance over a three-year period ending
22
<PAGE> 27
December 31, 1996. The Company expects to amortize associated reserves to income
from continuing operations over the phase-out period. The pre-tax amount
amortized to income from continuing operations was $4.6 million and $4.4 million
in 1995 and 1994, respectively. The Company does not anticipate a significant
increase or decrease in cash requirements related to this change in policy
during the phase-out period.
Segment Operating Results
Operating results by business segment for the years 1995, 1994 and 1993 are
summarized below:
Power Transmission. Segment sales remained strong across substantially all
markets in 1995, increasing 1.9% over 1994, despite a nearly $2.0 million
decline in sales to the printing market. Operating income rose more than 25% for
the year, largely as a result of cost containment efforts and a shift in product
mix which resulted in a higher level of manufacturing activity.
Power Transmission segment sales increased 8.6% while operating profit more
than tripled in 1994 as compared with 1993 levels, as results benefited from an
upturn in the general mechanical and printing markets in the United States, as
well as the favorable effect of phasing out the subsidy for certain benefit
plans. See "-- Other Operating Results -- Retiree Medical and Life Insurance".
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $85.9 $93.3 $95.1
Segment operating income before unusual items............... 2.5 8.9 11.3
Unusual items............................................... (.2) -- --
----- ----- -----
Segment operating income.................................... $ 2.3 $ 8.9 $11.3
===== ===== =====
</TABLE>
Pumps. Segment net sales in 1995 were up 4.4% from 1994, 2.1% of which was
due to the effects of foreign exchange rates. However, segment operating income
decreased 5.4% due to a shift in product mix. Startup costs related to a new
line of corrosive-resistant composite pumps also adversely affected income, as
did expenses caused by now resolved technical difficulties related to a custom,
high performance product order.
The Company is in the process of acquiring substantially all of the assets
of its long-time three-screw pump licensee in France, which will allow the
Company to gain additional market penetration in Europe and North Africa.
Pumps segment net sales and operating profit in 1995 and 1994 were
adversely affected by a decline in U.S. Navy sales of over $6.0 million in 1994
and over $10.0 million in 1995, as compared with 1993 levels. These declines
were offset by increases in commercial sales of over $5.0 million in 1994 and
over $13.5 million in 1995, as compared with 1993 levels.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $91.6 $90.4 $94.4
Segment operating income before unusual items............... 10.9 10.4 9.9
Unusual items............................................... (.5) -- --
----- ----- -----
Segment operating income.................................... $10.4 $10.4 $ 9.9
===== ===== =====
</TABLE>
Instrumentation. This segment experienced a double-digit growth rate in
its industrial business in 1995, offset by a 40% drop in sales to the U.S. Navy.
The result was an overall increase in net sales of 5.4% for the year. 1995
earnings were negatively impacted by the costs associated with a restructuring
of this segment's European operations coupled with a significant investment in
new marketing and sales initiatives.
23
<PAGE> 28
During 1995, the Instrumentation segment closed its plant in Frankfurt,
Germany and shifted production of certain products into a lower-cost
manufacturing facility in the United Kingdom. Total fourth quarter costs
relating to this relocation exceeded $1.2 million, including $.9 million of
unusual items. In response to the growing global markets for fluid sensor
products, the Company spent an additional $2.0 million in 1995 to upgrade its
sales and marketing organization and launched several new marketing initiatives.
The marketing efforts included an aggressive new trade advertising program
designed to produce a continuing source of new sales leads. These investments
should result in lower manufacturing costs and greater sales beginning in 1996.
Instrumentation segment net sales in 1994 were approximately $.2 million
less than 1993 net sales. Segment operating income in 1994, however, increased
23.1% from 1993. Excluding the unusual charge of $.9 million incurred in 1993,
segment income in 1994 increased 10.6% from 1993 levels resulting from improved
performance in the European operations.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................... $72.4 $72.2 $76.1
Segment operating income before unusual items............... 8.9 9.8 7.6
Unusual items............................................... (.9) -- (.9)
----- ----- -----
Segment operating income.................................... $ 8.0 $ 9.8 $ 6.7
===== ===== =====
</TABLE>
Morse Controls. Segment net sales of $107.7 million were up 7.6% for 1995,
as compared with $100.1 million in net sales in 1994, due to increases in the
mobile equipment, aviation and other general industrial markets. 1995 segment
operating income of $5.3 million decreased only $.4 million, as compared with
the 1994 level of $5.7 million. In the fourth quarter of 1995, the segment
recorded unusual charges of $1.5 million related to a major downsizing of its
European operations, and non-cash adjustments of $1.5 million, principally
related to inventory. Excluding unusual items and non-cash charges, segment
operating income increased to $8.3 million in 1995, as compared with $5.7
million in 1994.
In the third quarter of 1995, Morse entered into a joint venture in China
with an affiliate of Dong Feng Motor Corporation, one of China's largest truck
manufacturers. The joint venture will manufacture push-pull cables, pull-only
cables and other products used in trucks and other vehicles. In the last quarter
in 1995, Morse also completed the strategic acquisition of RMH Controls, a
small, specialized manufacturer of electronic controls with operations in Sweden
and the United Kingdom. RMH's technology will permit Morse to expand its product
offering in microprocessor-based electronic controls for marine and industrial
applications.
The Morse Controls segment had net sales of $100.1 million in 1994,
compared with net sales of $90.9 million for 1993, an increase of 10.1%, based
on increased pleasure marine sales. The increased sales level resulted in
operating income for the segment of $5.7 million in 1994, compared with $.5
million in 1993. Operating income in 1993 included unusual charges of $2.4
million related to restructuring and facilities consolidations.
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales................................................. $90.9 $100.1 $107.7
Segment operating income before unusual items............. 2.9 5.7 6.8
Unusual items............................................. (2.4) -- (1.5)
------ ------ -----
Segment operating income.................................. $ .5 $ 5.7 $ 5.3
====== ====== =====
</TABLE>
Company-wide Fourth Quarter Results
Net sales from continuing operations in the fourth quarter of 1995 were
$90.0 million compared with $90.3 million in the fourth quarter of 1994. The
Company had income from continuing operations of $4.0 million, or $.23 per
share, in the fourth quarter of 1995 compared with a loss from continuing
operations of $.3 million, or $.02 per share, in the comparable 1994 period.
Income from continuing operations benefited
24
<PAGE> 29
from a reduction in deferred tax asset valuation allowances of $17.0 million,
partially offset by the unusual charges of $9.0 million in the fourth quarter of
1995.
Power Transmission. Segment net sales experienced a decline of 3.6% to
$22.4 million in the fourth quarter of 1995 compared to the same period in 1994
as the general mechanical market slowed. Despite this sales decrease, segment
operating income increased 11.7% to $2.2 million in the 1995 fourth quarter as
compared with the 1994 period, largely as a result of aggressive cost
containment efforts and a shift in product mix.
Pumps. Segment net sales of $24.8 million were up 4.9% in the fourth
quarter of 1995 compared to the same period in 1994. Segment operating income
was down 20.8% to $1.6 million, when compared to the same period in 1994, due in
part to a shift in product mix and to startup costs related to a new line of
corrosive-resistant composite pumps and expenses caused by now-resolved
technical difficulties related to a custom, high performance product order.
Instrumentation. Segment fourth quarter 1995 net sales were $18.6 million,
a decrease of 2.9%, compared with the same period in 1994. Fourth quarter 1995
earnings of $.2 million, which compared with $2.8 million in the fourth quarter
of 1994, were negatively impacted primarily by the costs associated with a
restructuring of its European operations. Total costs relating to this
relocation exceeded $1.2 million including $.9 million of unusual items. In
addition, the increased investment in new marketing and sales initiatives during
1995 contributed to the decrease compared to the 1994 fourth-quarter period.
Morse Controls. Segment net sales in the fourth quarter of both 1995 and
1994 were $24.2 million. The segment incurred an operating loss of $1.9 million
in the fourth quarter of 1995 as compared with operating income of $1.3 million
in the comparable 1994 period. Unusual items totaling $1.5 million were recorded
related to a major downsizing of its European operations. Additionally, fourth
quarter 1995 results were negatively impacted by approximately $1.5 million of
non-cash adjustments principally related to inventory.
LIQUIDITY AND CAPITAL RESOURCES
Short-term and Long-term Debt
Prior to consummation of the Refinancing, the Company's domestic liquidity
requirements were served by the $60 million revolving credit facility (including
a letter of credit subfacility) under the Old Credit Agreement. The Company's
needs outside the United States are covered by short and intermediate term
credit facilities from foreign banks. As of December 31, 1995, there were $18.2
million of revolving credit borrowings and $7.8 million of standby letters of
credit outstanding under the Old Credit Agreement. The Company's current
domestic liquidity requirements are served by the New Credit Agreement, which
includes a new $70 million revolving credit facility. The initial borrowings of
term loans and the initial revolving credit borrowings under the New Credit
Agreement were used to, among other things, retire the outstanding obligations
under the Old Credit Agreement. See "Description of the New Credit Agreement".
The Company also has, in the aggregate, foreign short-term credit
facilities of approximately $35.5 million. As of December 31, 1995, $18.8
million is outstanding under these foreign facilities, of which $9.8 million
relates to indebtedness of discontinued operations.
In addition, at December 31, 1995, the Company had outstanding $70.0
million in aggregate principal amount of the 12.25% Debentures, maturing in
1997, and $150 million in aggregate principal amount of the 12% Debentures,
maturing in amounts of $37.5 million in 1999, $37.5 million in 2000 and $75.0
million in 2001. The net proceeds of the Offering, together with certain
proceeds from initial borrowings under the New Credit Agreement, were used to
redeem all of the Old Debentures.
The Company sold its CEC Instruments division, corporate headquarters
building and other previously identified assets for aggregate proceeds of $13.2
million in 1994, and its Heim Bearings, Aerospace and Barksdale Controls
operations for aggregate proceeds of approximately $91 million in 1993. The
Company used the net proceeds from these sales to reduce amounts outstanding
under its then existing senior notes and revolving credit facility. In the first
quarter of 1995, the Company repaid outstanding term and bridge loans
25
<PAGE> 30
under the Old Credit Agreement in the aggregate principal amounts of $36.7
million and $45.0 million, respectively. In 1995, the Company redeemed $80
million in aggregate principal amount of the 12.25% Debentures at 100% of their
principal amount, $40 million of which were redeemed in March 1995 with proceeds
from the sale of the Company's former Turbomachinery business, and an additional
$40 million of which were redeemed in July 1995 with proceeds from the sale of a
majority of the Company's Electro-Optical Systems business. As a result of these
actions, total interest expense has been significantly reduced as compared with
prior period levels. See "Summary Financial Data" for the effect, on a pro forma
basis, of the Refinancing on the Company's interest expense.
As a result of the early extinguishment of debt referred to above, a $4.1
million, or $.24 per share, charge was recorded as an extraordinary item in the
first quarter of 1995. The charge consisted of the write-off of deferred debt
expense associated with the portions of the debt repaid under the Old Credit
Agreement and the redemption of a portion of the 12.25% Debentures. The
redemption of $40 million in aggregate principal amount of the 12.25% Debentures
on July 6, 1995 resulted in an extraordinary charge of approximately $.3
million, or $0.02 per share, in the third quarter of 1995.
Management continues to actively pursue opportunities to further reduce its
high interest debt. The Company plans to use the proceeds from the sales of its
Roltra-Morse and Varo's Electronic Systems businesses to reduce debt.
Cash Flow
The Company's operating activities used cash of $31.7 million in 1995,
compared with providing cash of $16.8 million in 1994, due principally to cash
requirements of $22.0 million related to discontinued operations, cash
requirements related to previously sold operations (not classified as
discontinued operations) and a net increase in working capital items within the
Company's continuing operations. Net cash provided by investing activities was
$145.5 million in 1995, compared with cash used of $.3 million in 1994. The 1995
increase in net cash provided by investing activities is principally a result of
$174.9 million of net proceeds generated from the sale of businesses and assets
in 1995 versus $13.6 million in 1994. Cash and cash equivalents decreased to
$3.8 million at December 31, 1995 from $26.9 million at December 31, 1994, due
to cash used by operating activities and increased capital expenditures during
1995.
Working capital at December 31, 1995 was $81.0 million, a decrease of $51.2
million from the end of 1994, due principally to the sales of the Company's
former Turbomachinery business and substantially all of its Electro-Optical
Systems business. The reduction in assets was partially offset by a reduction in
current debt and accrual levels (related primarily to previously sold
businesses) in 1995.
Capital expenditures of continuing operations of $14.6 million in 1995
increased significantly over the 1994 level of $6.0 million. The 1995 level was
a planned increase over the 1994 level in order to make investments to maintain
and to improve competitive advantages at the Company's operations. The Company
anticipates that capital expenditures in 1996 will increase slightly over the
1995 level primarily to improve productivity. There were no material outstanding
commitments for the acquisition of property, plant and equipment at December 31,
1995.
Management of the Company believes that cash flow from operations, cash
available from unused credit facilities and cash generated by additional asset
sales will be sufficient to meet its foreseeable liquidity needs.
SEASONALITY; CUSTOMER CONCENTRATION; INFLATION
General economic conditions worldwide continue to create business
opportunities for the coming year in many of the markets in which the Company
operates. Management believes that because of the nature of its industrial
products and the fact that the Company sells diverse products to many markets,
the Company is not significantly affected by the cyclical behavior, or
seasonality, of any particular market that it serves.
Total sales to the U.S. Department of Defense in the form of prime and
subcontracts were approximately 7% of net sales from continuing operations in
1995, 9% of sales in 1994 and 14% of sales in 1993.
26
<PAGE> 31
Approximately 31% of the property, plant and equipment of the Company's
continuing operations has been acquired over the past five years and has a
remaining useful life ranging from five years to fifteen years for equipment to
thirty years for buildings. In addition, property, plant and equipment of the
businesses acquired by the Company have been adjusted to their fair value at the
time of acquisition. Assets acquired in prior years are expected to be replaced
at higher costs but this will take place over many years. The newer assets will
result in higher depreciation charges but, in many cases, due to technological
improvements, there will be operating cost savings as well. The Company
considers these matters in establishing its pricing policies.
27
<PAGE> 32
BUSINESS
GENERAL
Imo is a diversified multinational corporation that designs, manufactures
and distributes a broad range of engineered industrial products to over 35,000
customers worldwide. With manufacturing plants on four continents, approximately
one-third of the Company's 1995 net sales were generated overseas. The Company
operates through four core business segments:
- POWER TRANSMISSION. The Company produces a wide range of power
transmission and motion control products, including enclosed gear drives,
speed reducers, open gearing components and AC and DC motor controllers.
Imo markets these products principally under the Boston Gear and Fincor
brand names. The Company believes that the segment's emphasis on product
quality, technical assistance and customer service differentiates Imo
from its competitors and allows it to compete effectively in its niche
markets. The Company's ability to make 10:00 a.m. next-day delivery of a
wide variety of Boston Gear products for orders received by 8:00 p.m.
exemplifies its superior customer service.
- PUMPS. The Company believes it is the largest manufacturer of rotary
screw pumps in the world and, according to published industry data, the
IMO brand name is the most recognized brand name for rotary screw pumps.
The Company markets its products, which are used to pump a broad range of
viscous fluids, under both the IMO and Warren brand names. The Company's
pumps (screw, gear and centrifugal) serve a variety of industries,
including naval, commercial marine, power generation, pulp and paper,
elevator, hydrocarbon processing, chemical processing and crude oil.
- INSTRUMENTATION. The Company believes it is a leading manufacturer of a
wide variety of products that perform critical sensing, measurement and
control functions, including level and flow switches, pressure
transducers and liquid level indicators. Imo markets these products
principally under the Gems brand name, which the Company believes is the
most recognized brand name among level and flow switches and liquid level
indicators in North America.
- MORSE CONTROLS. The Company believes it is a leading manufacturer of a
variety of products that position or regulate key control systems of
leisure marine craft and industrial vehicles, including push-pull cable
systems, mechanical, electronic and hydraulic steering systems, and
accelerator, clutch and gear shift controls. Imo markets these products
principally under the Morse, AquaPower and Hynautic brand names.
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<PAGE> 33
Each of Imo's four core business segments focuses on niche markets,
produces products engineered to exacting specifications, emphasizes customer
service and strives for continuous improvement in manufacturing quality. The
following table identifies, by business segment, the Company's principal
products, the brand names under which they are marketed and examples of their
end uses:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT BRAND NAMES PRODUCTS* END USES
----------------- ------------------------------- --------------------------
<S> <C> <C> <C>
POWER Boston Gear Enclosed Gear Drives General Industrial
TRANSMISSION Open Gearing Conveyors
(1995 net sales Speed Reducers Food Processing Machinery
of $95 million) Helical Gear Drives
Delroyd Worm Gears Heavy Industrial
Fincor Analog Adjustable-Speed Drives Printing Presses
Digital Adjustable-Speed Drives Textile Machinery
Refrigeration
- ---------------------------------------------------------------------------------------------------------
PUMPS IMO Three-Screw Pumps Ships
(1995 net sales Centrifugal Pumps Elevators
of Gear Pumps Power Generation
$94 million) Crude Oil
Warren Two-Screw Pumps Paper Processing
- ---------------------------------------------------------------------------------------------------------
INSTRUMENTATION Gems Level & Flow Switches Machine Tools
(1995 net sales Turbines
of $76 million) HVAC Systems
TransInstruments Pressure Transducers Aircraft
Water Processing
WEKA Liquid Level Indicators Fuel and Storage Tanks
Cryogenic & Industrial Valves
- ---------------------------------------------------------------------------------------------------------
MORSE CONTROLS Morse Push-Pull Control Systems Leisure Marine
(1995 net sales Industrial Vehicles
of $108 million) Trucks
Buses
Hynautic Hydraulic Control Systems Pleasure Boats
Aqua Power Replacement Parts Marine Aftermarket
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* For a more detailed description of Imo's principal products, see the Glossary
of Product Descriptions attached as Annex A to this Prospectus.
The Company's predecessor was founded in 1901 by Dr. Carl Gustaf Patrik de
Laval, a Swedish scientist. The assets of the predecessor were sold in 1962 to
the Company, which was incorporated in Delaware in 1959. In 1963, Transamerica
Corporation ("Transamerica") acquired the Company. In 1986, Transamerica
distributed all of the issued and outstanding shares of the Company's common
stock to stockholders of Transamerica and since that time the Company has
operated on a stand-alone basis as a publicly traded company.
STRATEGIC REPOSITIONING
After acquiring several diverse businesses in the late 1980's through a
series of debt-financed acquisitions, management in 1992 determined to reduce
debt through the sale of certain businesses. Pursuant to this decision, the
Company divested its Heim Bearings, Aerospace, Barksdale Controls and CEC
Instruments businesses. In September 1993, Donald Farrar joined the Company as
its Chief Executive Officer. Under Mr. Farrar, the Company adopted a strategy to
reposition itself by focusing on its less capital intensive businesses with
market leadership, strong brand name recognition and a broad customer base that
was less dependent on U.S. Government sales. In connection with this strategy,
the Company divested its Turbomachinery business and most of its Electro-Optical
Systems business. This repositioning will be completed upon the sale of the
Roltra-Morse business and the Electronic Systems division of the Electro-
29
<PAGE> 34
Optical Systems business, each of which is expected to occur in 1996. Since
January 1, 1993, after giving effect to the Refinancing, Imo will have reduced
its debt by approximately $180 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Concurrent with its repositioning, the Company initiated a program to
reduce its cost structure by consolidating operations, eliminating duplicative
functions and streamlining operating processes. These efforts, which the Company
intends to continue, have contributed significantly to a reduction in general
and administrative expenses at Imo's core businesses of 6.8% since January 1,
1993 and to a reduction in the overall number of employees in its core
businesses of 270, or 9.4%, over the same period. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
BUSINESS STRATEGY
The Company plans to continue to focus on its four core businesses, each of
which has the benefit of a strong leadership position in one or more niche
markets, high brand recognition, a track record of superior customer service and
responsive technical support, an extensive sales and distribution network and an
established customer base in a broad variety of industries. Having substantially
repositioned the Company and strengthened its balance sheet, management believes
that Imo is well positioned to exploit further its business strengths and to
achieve increased growth and improved profitability. Additionally, the Company
has initiated a new corporate identity program designed to strengthen name
recognition of its four core businesses. Set forth below are the key elements of
the Company's business strategy.
- Concentration on Niche Markets. Each of Imo's four core businesses has
strong market positions in selected niche markets. This allows Imo to
develop expertise in its particular markets and in the distinctive needs
of customers in those markets. The Company believes that this expertise,
together with its demonstrated customer service and technical support
capabilities, differentiate Imo from its competitors.
- Consolidation into Focused Business Segments. To improve its current
business performance and position itself to take full advantage of
emerging global opportunities, the Company has consolidated thirteen
previously distinct and independent operating divisions into four focused
business segments. Each segment operates as a strategic global business
unit with a single senior manager accountable for the entire segment's
results, which better positions the Company to cross-sell products across
geographical lines and fully utilize its existing strong sales and
distributions channels. For example, the Company now sells its
UK-manufactured pressure transducers in the United States through its
U.S. field sales network that previously sold only U.S.-manufactured Gems
products.
- Continued Cost Controls. Management is committed to continued
improvement in the Company's cost structure, and Imo's realignment into
four business segments facilitates further cost-cutting measures designed
to improve operating margins. The Company recently consolidated its three
European Instrumentation facilities into two more focused, cost-efficient
plants. These two locations now produce, at lower cost, a more complete
line of level, flow and pressure sensing instruments for European markets
under the Gems brand name. In the Morse Controls segment, Imo recently
integrated and consolidated the administrative functions of three North
American facilities into one location, improving customer service and
reducing overhead expenses. The Company intends to continue the
integration of its business segments' manufacturing processes, functions,
facilities and products.
- Customer Service and Responsiveness. The Company believes it is a market
leader in providing superior customer service and responsiveness. In the
power transmission industry Imo has distinguished itself with its ability
to fill orders the day they are received. In 1995, approximately 62% of
Boston Gear's sales were shipments of orders received that same day. In
addition, the Company's Gems Sensors division offers engineering support
to customize products to thousands of applications. In 1995, Gems was
able to ship 70% of its orders within 24 hours despite this exacting
manufacturing process.
30
<PAGE> 35
- Product Line Extensions and New Product Development. Imo historically
has increased its sales through the development of new products and the
extension of existing products to address new applications. In 1995, Imo
introduced 24 new products and 94 enhanced products for customers in a
broad range of industries. Many of these products were designed for a
specific customer, application or market. With over 150 employees
dedicated to research and development and product engineering, the
Company intends to continue to provide its customers with superior
technical support and to continue to develop new and enhanced products
that it believes will offer attractive expected returns.
- Penetration of Emerging Markets. The Company intends to aggressively
market its products in the emerging growth markets of the Pacific Rim and
Latin America. Accordingly, the Company recently opened sales offices in
Singapore and Venezuela and since 1994 has hired five new salespersons
and 13 new distributors to market the Company's products throughout the
Pacific Rim and Latin America.
- Strategic Acquisitions and Alliances. The Company intends to supplement
its internal growth with strategic alliances or acquisitions of products
or businesses that enhance its technological capabilities, expand its
geographical coverage, complement existing product portfolios or that can
be leveraged through current sales channels. Imo recently extended its
product line through the acquisition of RMH Controls, a specialized
manufacturer of electronic controls with operations in Sweden and the
United Kingdom. The technology developed by RMH complements and expands
the Morse Controls' products line to include microprocessor-based
electronic controls for marine and industrial applications. In addition,
the Company is acquiring its three-screw pump licensee in France, which
will facilitate additional market penetration in Europe and North Africa.
The Company also recently formed a joint venture with an affiliate of
Dong Feng Motor Corporation, one of the largest truck producers in China,
to produce flexible push-pull and pull-only cables for a Japanese-built
gear box to be installed on new model three- and five-ton trucks in the
Chinese market, with exports to other markets.
BUSINESS SEGMENTS
Power Transmission
The Company is a leading producer of more than 20,000 types of power
transmission and motion control products, including enclosed gear drives, speed
reducers and open gearing components marketed under the Boston Gear and Delroyd
trade names and AC and DC adjustable motor controls marketed under the Fincor
trade name.
The Power Transmission segment's products have numerous industrial
applications, including use in automation and conveyor equipment, food
processing equipment, heating, ventilation and air conditioning units, metal
processing machinery, printing presses, paper making machinery and exercise
equipment. The Company believes that a majority of all presses that print daily
newspapers in the United States are equipped with Fincor drives.
Products are sold to original equipment manufacturers ("OEMs") and to end
users through a sales force of approximately 60 persons, an extensive
distribution network of approximately 270 distributors at over 2,000 locations
across the United States and through the segment's catalog. In addition, the
Company sells its products through third-party catalogs such as the catalog
produced by W.W. Grainger, Inc. ("Grainger"), one of the largest industrial
supply firms in the United States with 1995 net sales of approximately $3
billion.
The Company believes that Boston Gear is the market leader in terms of
customer service, responsiveness and technical support in the power transmission
industry. Boston Gear will ship any stock product the same day it is ordered at
no additional charge and, with respect to its customized models of speed
reducers encompassing over 9,000,000 possible product variations, Boston Gear
guarantees same-day shipment if the order is received by noon EST, and
next-business-day shipment if the order is received after noon and before 8:00
p.m. Boston Gear provides extensive technical support to its customers,
including 24-hour electronic access to detailed product information and the
Company's proprietary "expert" computer system which helps a customer select the
proper speed reducer configuration for its required application. In addition,
the
31
<PAGE> 36
Company's distributors have access to Boston Gear's 43-person customer service
staff which responds to an average of 1,000 customer inquiries per day. The
Company believes that the Power Transmission segment's emphasis on product
quality, technical assistance and customer service differentiates Imo from its
competitors and allows it to compete effectively in its niche markets. Grainger
acknowledged the Company's superior product quality and customer responsiveness
by naming Boston Gear its top power transmission vendor for 1993.
Pumps
Imo believes it is the largest worldwide manufacturer of rotary screw pumps
(approximately 83% of Pumps segment net sales in 1995), with approximately 40%
of the global market share. The Company produces two and three screw pumps,
centrifugal pumps and gear pumps, which it markets under the IMO and Warren
brand names. The IMO brand name, according to published industry data, is the
most recognized brand name for rotary screw pumps. The Company also sells
replacement parts and performs repair services for its manufactured products,
many of which require rebuilding every three to five years due to the wear from
pumping abrasive fluids.
The Company's products, which are used to pump viscous fluids, principally
serve the following eight industries: naval, commercial marine, power
generation, pulp and paper, elevator, hydrocarbon processing, chemical
processing, and crude oil. The Company believes it is the leading worldwide
supplier of rotary screw pumps to five of these industries. The Company's pumps
have numerous applications, including use in machinery lubricating and cooling
systems, hydraulic elevators, environmental or HVAC equipment systems, pulp and
paper process streams, shipboard machinery lubrication systems, crude oil
gathering and pipeline services, and naval vessels throughout the world.
As depicted in the following table, since 1993, the Company has exhibited
annual growth in commercial sales and a decline in sales to the U.S. Navy.
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial net sales (non-naval)...................... $60,571 $65,540 $73,630
Percent growth...................................... -- 8.2% 12.3%
Naval net sales....................................... $30,985 $24,888 $20,745
Percent growth (decline)............................ -- (19.7)% (16.6)%
------- ------- -------
Total sales........................................... $91,556 $90,428 $94,375
======= ======= =======
Percent growth (decline)............................ -- (1.2)% 4.4%
</TABLE>
The Company does not anticipate a significant decline in net sales to the
U.S. Navy in 1996 compared to 1995 levels.
The Company's pumps are marketed to OEMs and to end users in North America
through a joint field sales force (with the Company's Instrumentation segment),
with 18 branch offices in the United States and Canada. The Pumps segment also
maintains affiliates or branch offices in Sweden, Germany, Italy, Switzerland
and Singapore and benefits from a global network of distributors and agents in
selected markets. The Company believes that significant growth opportunities
exist for this segment in Latin America and the Pacific Rim and intends to
aggressively pursue the marketing of its pumps in those areas through its global
sales and distribution network. The Company recently began marketing its pumps
through sales offices in Singapore and Venezuela. The Company's pending
acquisition of its long-time three-screw pump licensee in France will facilitate
additional market penetration in Europe and North Africa.
Instrumentation
The Company manufactures a wide variety of products that perform critical
sensing, measurement and control functions, including liquid level and flow
sensors, switches and controls, tank level indication systems and pressure
transducers marketed under the Gems brand name. The Company believes that it is
one of the
32
<PAGE> 37
largest worldwide manufacturers of non-automotive sensors in the fragmented
instrumentation market and, according to published industry reports, the Gems
brand name is the most recognized brand name among level and flow switches and
liquid level indicators in North America.
Instrumentation products serve the industrial machinery, aviation, marine,
defense, pulp and paper process, oil and gas, power generation and other
industries. Fixed and adjustable flow switches are used in a variety of
applications, such as monitoring hydraulic fluids, coolants and lubricating oils
in machine tools, turbines, centrifuges, HVAC systems, welding equipment,
industrial laser equipment, food and beverage cooling equipment, medical
equipment, commercial laundry and dishwashing machines. Visual level indicators
marketed under the Suresite(R) brand name use brightly colored flags that are
mechanically flipped by magnets to give an accurate and highly visible
indication of liquid level in fuel tanks, storage tanks and liquid dispensers.
The Company sells its products to more than 14,000 industrial and marine
customers worldwide through a joint field sales force (with the Pumps segment),
a network of distributors and representatives and specialty catalogs.
Imo emphasizes its custom engineering capabilities in marketing and
differentiating its instrumentation products. The Company aims to work with its
customers early in their own design processes to develop instrumentation
products that address the particular needs of each customer's applications. In
1995, Imo custom designed products representing over 60% of the Instrumentation
segment's net sales.
As Imo develops custom engineered products for customers in niche markets,
the Company develops an expertise with such markets and the particular
requirements of customers in those markets. Imo intends to leverage these
capabilities in its existing markets and in new markets by aggressively
marketing its instrumentation products to industry participants that are not
currently Imo customers but who have similar product requirements as the
Company's existing customers.
In 1991 Imo introduced a new, lower cost transducer product line based upon
a new process for manufacturing transducers called "chemical vapor deposition"
or "CVD". After a successful European launch, the Company initiated a U.S. sales
program in 1994. The Company intends to invest further in the CVD process in
order to capitalize on this significant growth opportunity.
Morse Controls
The Company manufactures a variety of products that position or regulate
key control systems of leisure marine craft and industrial vehicles, including
push-pull cable systems, mechanical, hydraulic and electronic steering systems,
and accelerator, clutch and gear shift controls. The products are marketed under
the Morse, Hynautic and Aqua Power brand names. The Company believes it is a
leading worldwide manufacturer of remote control operating systems for leisure
marine craft. The segment also sells replacement parts and performs repair
services for its manufactured products and for certain of its competitor's
products.
Morse Controls sells its products to the leisure marine, mobile vehicles
(i.e., trucks and buses), industrial and aviation markets. The products have
numerous applications, including for throttle, steering, valve control and
gear-shifting mechanisms installed in agricultural and construction equipment,
engine control mechanisms in trucks, buses and fire engines, aircraft crew seats
and cable tension regulators, and pleasure marine engine and gearbox control and
steering systems. Many premiere boat manufacturers, such as Hatteras, Bertram,
Sea Ray and Bayliner use Morse marine products. John Deere, Morse Controls'
largest industrial customer, recently awarded it "Partner" (i.e., preferred
supplier) status, based on product quality and on-time performance. The
Company's products are sold to OEMs through a factory-direct sales force of 61
persons and a nationwide network of more than 200 distributors. The Company also
has a small, but rapidly growing, percentage of sales through catalogs. The
Company maintains sales offices in the United States, the United Kingdom,
Germany, France, Sweden, Australia and Singapore.
The Company primarily serves the niche market of mechanical, cable-actuated
control systems. The Company, however, recently responded to enhanced market
demand for electronic control systems by developing electronic control systems
for on- and off-road vehicle transmissions and throttle systems and leisure
marine shift and throttle systems, and completed the acquisition of a small,
specialized manufacturer of
33
<PAGE> 38
electronic controls for both marine and industrial vehicle manufacturers. See
"-- Business Strategy". In addition, the Morse Control segment intends to
enhance its sales and marketing efforts in developing markets. The Company
recently established a joint venture in China with an affiliate of Dong Feng
Motor Corporation, one of China's largest truck manufacturers, to manufacture
push-pull and pull-only cables for gear boxes. See "-- Business Strategy".
MARKETING AND PRODUCT DISTRIBUTION
The Company's products and services are marketed worldwide. The Company has
implemented initiatives to increase its global sales and distribution networks
in order to grow its businesses. See "-- Business Strategy". Approximately 90%
of the Company's products are marketed outside of the United States through
wholly owned subsidiaries, sales offices and several joint ventures. With the
exception of the products manufactured by the Company's Power Transmission
segment (70% of which are sold through independent distributors), the Company's
products are sold primarily through the Company's direct field sales force of
203 persons. During 1995, sales by the Company's direct sales forces accounted
for approximately 30%, 81%, 87% and 83% of the Power Transmission, Pumps,
Instrumentation and Morse Controls segment net sales, respectively. The
Company's remaining sales are made through distributors, dealers, agents and
catalogs.
CUSTOMERS
None of the Company's four business segments is dependent on any single
customer or a few customers, the loss of which would have a material adverse
effect on the respective segment, or on the Company as a whole. No customer
accounted for 10% or more of the Company's consolidated net sales in 1995. Total
sales to the U.S. Department of Defense (including both prime and subcontracts)
were approximately 7% of net sales in 1995, 9% of net sales in 1994 and 14% of
net sales in 1993. Government contracts, including those between the Company and
the Department of Defense, may be terminated, in whole or in part, without prior
notice at the Government's convenience upon payment of compensation only for
work performed and commitments made at the time of termination. In the event of
termination, the contractor may also receive some allowance for profit on work
performed. The right to terminate for convenience has not had any significant
effect on the Company's business.
BACKLOG
The Company's backlog of unfilled orders for its continuing operations at
December 31, 1995 and 1994 was $82.4 million and $80.5 million, respectively.
Backlog is considered significant only with respect to the Warren Pumps
business of the Pumps segment, given that the products of that operation require
long lead times for manufacture. Of the total backlog from continuing operations
at December 31, 1995, the Company believes that all but approximately $2.5
million of its orders will be filled in 1996.
RAW MATERIALS
The Company's operations obtain raw materials, component parts and supplies
from a variety of sources and generally from more than one supplier. The
Company's principal raw materials are metals and plastics. The Company's
suppliers and sources of raw materials are based in both the United States and
foreign countries and the Company believes that its sources are adequate for its
needs for the foreseeable future. The loss of any one supplier would not have a
material adverse effect on the Company's financial condition or results of
operations. If, however, any significant supplier to Boston Gear were to cease
supplying Boston Gear with its product, Boston Gear would be temporarily unable
to guarantee next day delivery of certain products until alternative suppliers
were located.
34
<PAGE> 39
INTELLECTUAL PROPERTY
The Company owns numerous unexpired U.S. patents (currently having a term
of 17 years from the date of issuance and expiring at various times in the
future) and foreign patents (having an initial term that is governed by the law
of the country and expiring at various times in the future), including
counterparts of certain of its U.S. patents, in major industrial countries of
the world. The Company's products are marketed under various trade names and
registered U.S. and foreign trademarks (having an initial term that is governed
by the law of the country and expiring at various times in the future). Although
the Company believes that many of its trademarks are well known in its markets
and that the Company derives significant benefit from its trademarks and its
patents, the Company does not consider any one patent or trademark or any group
thereof essential to its business as a whole or to any of its business segments.
The Company relies, to an extent, on proprietary product knowledge and exacting
manufacturing processes in its operations.
RESEARCH AND DEVELOPMENT
The Company's ongoing research and development programs involve the
development of new technologies to enhance the performance of or lower the cost
of manufacturing the Company's products, and the redesign of existing product
lines either to increase their efficiency or to lower their manufacturing cost.
Expenditures for research and development charged against continuing operations
for 1993, 1994 and 1995 by business segment were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Power Transmission............................................. $ .9 $ .7 $ .7
Pumps.......................................................... 1.8 1.8 1.5
Instrumentation................................................ .9 .7 .9
Morse Controls................................................. 1.6 1.3 1.7
Other.......................................................... 2.3 .1 --
---- ---- ----
Total................................................ $7.5 $4.6 $4.8
==== ==== ====
</TABLE>
EMPLOYEES
At December 31, 1995, the Company employed approximately 3,900 persons
worldwide (2,000 persons in the United States and 1,900 outside of the United
States). Of such number, approximately 2,900 are associated with continuing
operations. There are approximately 900 persons worldwide covered by collective
bargaining agreements with various unions expiring at various dates in 1996 and
1998. The Company considers its relations with its employees to be satisfactory.
PROPERTIES
As of December 31, 1995, the Company's continuing operations have 22
manufacturing facilities, of which 12 are located in nine different states in
the United States and the remaining are located in the United Kingdom, Germany,
Singapore, Sweden, Switzerland, France and Australia. Of the 22 facilities, 17
are owned and five are leased. In addition, the Company owns 12 closed
manufacturing facilities (approximately 1.5 million square feet of building
space on 152.7 acres of land) that are being offered for sale. The properties
owned by the Company consist of approximately 3.0 million square feet of
building space, inclusive of the 1.5 million square feet of the closed
facilities, on approximately 400 acres (including 169.6 acres of undeveloped
land). The leases expire over a period of years from 1996 to 2054 with renewal
options for varying terms contained in four of the leases. The Company's
executive office, which is leased by the Company, is located in Lawrenceville,
New Jersey and occupies approximately 37,140 square feet.
The Company believes that its machinery, plants and offices are in
satisfactory operating condition and are adequate for their uses. The Company
believes that its properties have sufficient capacity to substantially increase
their current utilization without incurring significant additional capital
expenditures.
35
<PAGE> 40
The manufacturing facilities of the Company by business segment are
summarized below:
<TABLE>
<CAPTION>
NUMBER OF SQUARE FEET OF
PLANTS BUILDING
-------------- --------------
OWNED LEASED OWNED LEASED
----- ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Power Transmission....................................... 4 -- 366 --
Pumps.................................................... 4 -- 554 --
Instrumentation.......................................... 4 -- 154 --
Morse Controls........................................... 5 5 335 253
-- --
----- ---
Continuing Operations.................................. 17 5 1,409 253
Other (Including Discontinued Operations)................ 3 3 56 434
-- --
----- ---
Total.......................................... 20 8 1,465 687
== == ===== ===
</TABLE>
ENVIRONMENTAL MATTERS
In connection with the Company's separation from Transamerica in 1986,
three of the Company's properties required compliance with the New Jersey
Environmental Cleanup Responsibility Act, which was amended by the Industrial
Site Recovery Act ("ISRA"). ISRA required that the Company's three New Jersey
industrial establishments undergo an approved remediation by the New Jersey
Department of Environmental Protection and Energy (the "NJ DEP"). Remediation
has been completed at two sites and final closure approvals have been sought. As
a result of the sale of a portion of the third establishment, this site has been
divided into two separate sites for ISRA compliance. Both sites have undergone
cleanup but the NJ DEP has requested and received from the Company additional
sampling information. If further cleanup is required, the Company does not
expect it to have a material adverse effect on its financial condition.
The Company has been identified in a number of instances as a "Potentially
Responsible Party" by the U.S. Environmental Protection Agency and in one
instance by the State of Washington with respect to the disposal of hazardous
wastes at a number of facilities that have been targeted for clean-up pursuant
to the CERCLA or similar State law. Although CERCLA and corresponding State law
liability is joint and several, the Company believes that its liability will not
have a material adverse effect on the financial condition of the Company since
it believes that it either qualifies as a de minimis or minor contributor at
each site. Accordingly, the Company believes that the portion of remediation
costs that it will be responsible for will therefore not be material. See
"-- Legal Proceedings".
The Company has operations in numerous locations, some of which require
environmental remediation. The Company, however, does not know of or believe
that any such matters or the cost of any required corrective measure, either
individually or in the aggregate, will have a material adverse effect on the
financial condition of the Company. There can be no assurance, however, that
these matters, or other environmental matters not currently known to the
Company, will not have such a material adverse effect.
LEGAL PROCEEDINGS
LILCO Litigation. In August 1985, the Company was named as defendant in a
lawsuit filed by LILCO following the severing of a crankshaft in a diesel
generator sold to LILCO by the Company. LILCO's complaint contained 11 counts,
including counts for breach of warranty, negligence and fraud, and sought
approximately $250 million in damages. In various decisions from 1986 through
1990, ten of the original 11 counts and various additional amended counts were
dismissed with only the original breach of warranty count remaining. Thereafter,
the trial court entered a judgment against the Company in the amount of $18.3
million. In September 1993, the Second Circuit Court of Appeals affirmed the
judgment and in October 1993, the judgment was satisfied by payment to LILCO of
approximately $19.3 million by International and Granite State.
In January 1993, the Company was served with a complaint in a case by
International alleging that, among other things, because International's
policies did not cover the matters in question in the LILCO case,
36
<PAGE> 41
it was entitled to recover $10 million in defense costs previously paid in
connection with such case and $1.2 million of the judgment which was paid on
behalf of the Company. In June 1995, the Court entered a judgment in favor of
International, awarding it $11.2 million, plus interest from March 1995 (the
"International Judgment"). The International Judgment, however, was not
supported by an order, and in July 1995, the Court vacated the International
Judgment as being premature because certain outstanding issues of recoverability
of the $10 million in defense costs had not been finally determined. The Company
is awaiting a final decision. If the International Judgment is reinstated, the
Company intends to appeal. If the ultimate outcome of this matter is
unfavorable, the Company will record a charge for the judgment amount plus
accrued interest.
In June 1992, the Company filed an action that is currently pending against
Granite State in an attempt to collect amounts for defense costs paid to counsel
retained by the Company in defense of the LILCO litigation. After having
reimbursed the Company for $1.7 million in defense costs, Granite State refused
to reimburse the Company for approximately $8.5 million in additional defense
costs paid by the Company, alleging that defense costs above reasonable levels
were expended in defending the LILCO litigation. The insurer subsequently paid
approximately $18 million of the judgment rendered against the Company, thereby
exhausting its $20 million policy. The Company claims that the insurer's refusal
to pay the $8.5 million in additional defense costs was in bad faith and the
Company is entitled to its cost of money and other damages. In a counterclaim,
Granite State is seeking reimbursement of all or part of the $1.7 million in
defense costs previously paid by it and has indicated that it may seek
additional damages beyond the reimbursement of defense costs, including
recoupment of approximately $4.0 million of the amount awarded by the jury in
the LILCO litigation (which $4.0 million represents amounts previously paid by
LILCO to the Company for generator repairs, and which Granite State had repaid
on behalf of the Company).
Other Litigation. The Company and one of its subsidiaries are two of a
large number of defendants in a number of lawsuits brought by approximately
19,000 claimants as of April 23, 1996 who allege injury caused by exposure to
asbestos. Although neither the Company nor any of its subsidiaries has ever been
a producer or direct supplier of asbestos, the claimants are alleging that the
industrial and marine products sold by the Company and the subsidiary named in
such complaint contained components which contained asbestos. Suits against the
Company and its subsidiaries have been tendered to their insurers who are
defending under their stated reservation of rights. Should settlements for these
claims be reached at levels comparable to those reached by the Company in the
past, they would not be expected to have a material effect on the Company.
The activities of certain employees of the Ni-Tec Division of the Company's
Varo Inc. subsidiary ("Ni-Tec"), headquartered in Garland, Texas, are the focus
of an ongoing investigation by the Office of the Inspector General of the U.S.
Department of Defense and the Department of Justice (Criminal Division). Ni-Tec
received subpoenas for certain records as a part of the investigation in 1992,
1993 and 1994, each of which was responded to. The investigation appears
directed at quality control, testing and documentation activities which began at
Ni-Tec while it was a division of Optic-Electronic Corp. Optic-Electronic Corp.
was acquired by the Company in November 1990 and subsequently merged with Varo
Inc. in 1991. The Company continues to cooperate fully with the investigation
and is pursuing settlement discussions with the U.S. government. Should
settlement be reached consistent with current discussions, it would not be
expected to have a material effect on the Company.
The operations of the Company, like those of other companies engaged in
similar businesses, involve the use, disposal and clean-up of substances
regulated under environmental protection laws. In a number of instances the
Company has been identified as a Potentially Responsible Party by the U.S.
Environmental Protection Agency, and in one instance by the State of Washington,
with respect to the disposal of hazardous wastes at a number of facilities that
have been targeted for clean-up pursuant to CERCLA or similar State law.
Although CERCLA and corresponding State law liability is joint and several, the
Company believes that its liability will not have a material adverse effect on
the financial condition of the Company since it believes
37
<PAGE> 42
that it either qualifies as a de minimis or minor contributor at each site.
Accordingly, the Company believes that the portion of remediation costs that it
will be responsible for will not be material.
The Company also has a lawsuit pending against it in the U.S. District
Court for the Western District of Pennsylvania alleging component failures in
equipment sold by its former diesel engine division and claiming damages of
approximately $3.0 million and a lawsuit in the Circuit Court of Cook County,
Illinois, alleging performance shortfalls in products delivered by the Company's
former Delaval Turbine Division and claiming damages of approximately $8.0
million. Each lawsuit is in the document discovery stage.
With respect to the litigation and claims described in the preceding
paragraphs under "Other Litigation", management of the Company believes it will
prevail, has adequate insurance coverage or has established appropriate reserves
to cover potential liabilities. There can be no assurance, however, on the
ultimate outcome of any of these matters. See Note 14 to the audited
Consolidated Financial Statements included elsewhere in this Prospectus.
The Company is also involved in various other pending legal proceedings
arising out of the ordinary course of the Company's business. The adverse
outcome of any of these legal proceedings is not expected to have a material
adverse effect on the financial condition of the Company. However, if all or
substantially all of these legal proceedings were to be determined adversely to
the Company, there could be a material adverse effect on the financial condition
of the Company.
38
<PAGE> 43
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is divided into three classes, with the
Company's stockholders electing one class of the directors at each annual
meeting of the stockholders. The following table sets forth certain information
regarding the directors (including the year his term is scheduled to expire) and
executive officers of Imo (ages at March 1, 1996).
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------------- --- -----------------------------------
<S> <C> <C>
Donald K. Farrar............................ 57 Chairman of the Board of Directors,
President and Chief Executive
Officer (1998)
James B. Edwards............................ 68 Director (1997)
J. Spencer Gould............................ 73 Director (1996)
Richard J. Grosh............................ 68 Director (1996)
Carter P. Thacher........................... 69 Director (1997)
Donald C. Trauscht.......................... 62 Director (1998)
Arthur E. Van Leuven........................ 70 Director (1996)
William M. Brown............................ 53 Executive Vice President, Chief
Financial Officer and Corporate
Controller
John J. Carr................................ 53 Executive Vice President
Brian Lewis................................. 62 Executive Vice President
Thomas J. Bird, Jr.......................... 52 Executive Vice President, General
Counsel and Secretary
David C. Christensen........................ 61 Senior Vice President, Human
Resources
Robert A. Derr II........................... 50 Vice President and Treasurer
Frederick W. Wojtowicz...................... 44 Vice President and Director, Taxes
</TABLE>
Donald K. Farrar joined the Company as Chief Executive Officer and
President in September 1993 and was elected Chairman in June 1994. Prior to
joining the Company, Mr. Farrar held various positions with Textron, Inc. and
Avco Corporation for 24 years. He served as President, Chief Operating Officer
and director of Avco until its 1985 acquisition by Textron. Thereafter, he
served as Senior Executive Vice President, Operations and a director of Textron,
Inc. until December 1989. From January 1990 until joining the Company, Mr.
Farrar was a private investor.
James B. Edwards is the President of the Medical University of South
Carolina located in Charleston, South Carolina. Prior to assuming this position
in November 1982, Dr. Edwards served as Governor of the State of South Carolina
from January 1975 through January 1979. From February 1979 through December
1981, Dr. Edwards was in private practice as a maxiofacial surgeon. In January
1981, Dr. Edwards was named U.S. Secretary of Energy and held that position
until November 1982. Dr. Edwards serves as a director of Phillips Petroleum
Company, SCANA Corporation, WMX Technologies, Inc., National Data Corporation,
G.S. Industries, Inc. and General Engineering Laboratories, Inc.
J. Spencer Gould is retired. From May 1982 to November 1987 Mr. Gould was
Vice President, Finance and Chief Financial Officer of The Stanley Works, a
manufacturer of tools, hardware and related products, based in New Britain,
Connecticut. From 1957 through April 1982, Mr. Gould was a senior partner with
Arthur Young & Company.
Richard J. Grosh has been an independent consultant since 1987. From 1976
to 1987 he served as Chairman and Chief Executive Officer of Ranco, Inc., a
manufacturer of automated controls located in Columbus, Ohio.
39
<PAGE> 44
Carter P. Thacher is the Chairman of Wilbur-Ellis Company, an export/import
company based in San Francisco, California, the principal business of which is
the domestic sale and distribution of agricultural chemical products. Mr.
Thacher has served in this position since January 1967, and from January 1967 to
December 1988 he also served as Chief Executive Officer.
Donald C. Trauscht is the Chairman of BW Capital Corporation, an investment
company. From 1967-1995, Mr. Trauscht held various positions with Borg-Warner
Corporation, including Director, and held the Chairman, Chief Executive Officer
and other executive positions in finance and strategy with Borg-Warner Security
Corporation. Prior to joining Borg-Warner Corporation, he served as President of
Langevin Company, a California electronics manufacturer. Mr. Trauscht is also a
director of Borg-Warner Security Corporation, Baker Hughes Incorporated, Esco
Electronics Corporation, Borg-Warner Automotive, Inc., Thiokol Corporation and
Blue Bird Corporation.
Arthur E. Van Leuven is retired. From 1977 to 1990, Mr. Van Leuven served
as Chairman and Chief Executive Officer of Transamerica Finance Group, Inc., and
from 1984 to 1990 he was additionally an Executive Vice President and a director
of Transamerica Corporation, an insurance and financial services company based
in San Francisco, California. From 1992 to 1993, Mr. Van Leuven served as the
Chairman and President of IGYS Systems, Inc., located in Los Alamitos,
California.
William M. Brown joined the Company as Executive Vice President and Chief
Financial Officer in June 1992, and assumed the additional responsibility of
Corporate Controller in January 1996. Prior to joining the Company, Mr. Brown
held various positions with ITT Corporation for 25 years, most recently as
Assistant Controller and General Auditor from 1988 to 1990 and as Vice President
and Assistant Controller from 1991 until joining the Company.
John J. Carr was promoted to his current position in July 1989. From July
1985 to July 1989, Mr. Carr was a Group Vice President of the Company. Mr. Carr
is responsible for the Instrumentation, Morse Controls, Pumps and Power
Transmission segments of the Company.
Brian Lewis was promoted to his current position in 1994. Mr. Lewis was
President and Chief Operating Officer of the Controls Group of Incom
International Inc. (acquired by the Company in December 1987) from 1983 until
December 1987 and was a Group Managing Director of the Company from January 1988
to 1994. Mr. Lewis has responsibility for the Roltra-Morse business, a
discontinued operation.
Thomas J. Bird, Jr. was promoted to his current position in October 1994.
Mr. Bird served as Senior Vice President, General Counsel and Secretary from
June 1992 to October 1994, and as Vice President and Associate General Counsel
from July 1990 to June 1992. Prior to joining the Company in July 1990, Mr. Bird
held various positions with General Electric Company for 18 years, most recently
as Group Counsel RCA Aerospace and Defense division from August 1987 to February
1988 and as General Counsel to GE Aerospace of General Electric Company from
February 1988 until joining the Company.
David C. Christensen joined the Company in his current position in August
1990. Previously, he was Senior Vice President, Human Resources for Pneumo Abex
Corporation (and its predecessor Abex Corporation) from 1980 to September 1988.
From September 1988 until joining the Company, Mr. Christensen was an
independent human resources consultant.
Robert A. Derr II joined the Company as Vice President and Corporate
Controller in 1988. Mr. Derr was promoted to Vice President and Treasurer in
January of 1996. Prior to joining the Company, Mr. Derr held various positions
with The Stanley Works for nine years, most recently as Director of Corporate
Accounting from 1982 to 1986 and as the Controller of the Vidmar Division of The
Stanley Works from 1986 until joining the Company.
Frederick W. Wojtowicz was promoted to his current position in July 1995.
Mr. Wojtowicz served as the Company's Executive Director of Tax from July 1988
to July 1995. Prior to joining the Company in July 1988, Mr. Wojtowicz held
various positions with Ernst & Young LLP, most recently as Senior Tax Manager.
40
<PAGE> 45
COMMITTEES OF THE BOARD
The Board of Directors of the Company has established an Audit Committee, a
Compensation Committee, an Executive Committee and a Nominating Committee. The
Audit Committee, comprised of Mr. Thacher as Chairman, Dr. Grosh and Mr.
Trauscht, reviews Imo's accounting practices and internal accounting controls,
oversees the engagement of Imo's independent auditors and performs such other
services as the Board or the Committee deems appropriate for the purpose of
maintaining sound and adequate reporting and auditing practices. The
Compensation Committee, comprised of Dr. Grosh as Chairman, Dr. Edwards, Mr.
Gould and Mr. Van Leuven, approves executive pay and benefit programs for
executive officers and other employees. The Executive Committee, comprised of
Mr. Van Leuven as Chairman, Mr. Gould and Mr. Farrar, acts on behalf of the full
Board of Directors between Board meetings with commensurate authority to so act
by majority vote, except it does not have the power to effect certain
extraordinary corporate actions, such as amending the Company's Certificate of
Incorporation or By-Laws, declaring dividends or approving the sale or lease of
all or substantially all of the property or assets of the Company. The
Nominating Committee, comprised of Dr. Edwards as Chairman, Mr. Thacher and Mr.
Trauscht, recommends to the Board of Directors individuals to fill Board
vacancies.
41
<PAGE> 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the ownership of
the Company's common stock, $1.00 par value (the "Common Stock"), as of March 1,
1996, by each person known to the Company to own beneficially more than 5% of
Common Stock outstanding on that date:
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED COMMON STOCK
----------------------------------------------------------- ------------ ------------
<S> <C> <C>
The Prudential Insurance Company of America................ 1,705,480(a) 9.9%
Prudential Plaza
Newark, NJ 07102-3777
State of Wisconsin Investment Board........................ 1,657,000(b) 9.7%
P.O. Box 7842
Madison, WI 53707
C.S. McKee & Co., Inc. .................................... 1,244,720 7.3%
1 Gateway Center
Pittsburgh, PA 15222
The TCW Group, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
.................... 965,400(c) 5.7%
Robert Day
200 Park Avenue, Suite 2200
New York, NY 10166
</TABLE>
- ---------------
(a) As reported by The Prudential Insurance Company of America ("Prudential") as
of December 31, 1995 in a filing made with the SEC. Of these shares, 200,000
shares are purchasable upon exercise of a currently exercisable warrant and
1,505,480 shares are shares over which Prudential may have direct or
indirect voting and/or investment discretion held for the benefit of its
clients by its separate account, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates.
(b) As reported as beneficially owned by State of Wisconsin Investment Board as
of December 31, 1995 in a filing made with the SEC.
(c) As reported as beneficially owned by The TCW Group, Inc. and Robert Day as
of February 12, 1996 in a filing made with the SEC. According to such
filing, Mr. Day may be deemed a controlling person of the TCW Group, Inc.
42
<PAGE> 47
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount and percentage of the Company's
outstanding Common Stock beneficially owned on March 1, 1996 by each director,
the Chief Executive Officer and the top four other most highly compensated
officers of the Company and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME OF INDIVIDUAL OWNED(A) COMMON STOCK(B)
------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Donald K. Farrar....................................... 297,112(c) 1.7%
James B. Edwards....................................... 81,750(d) --
J. Spencer Gould....................................... 95,950(e) --
Richard J. Grosh....................................... 81,606(f) --
Carter P. Thacher...................................... 110,750(d) --
Donald C. Trauscht..................................... 1,250 --
Arthur E. Van Leuven................................... 56,750(g) --
William M. Brown....................................... 47,865(h) --
John J. Carr........................................... 74,833(i) --
Brian Lewis............................................ 31,755(j) --
Thomas J. Bird......................................... 25,034(k) --
All directors and executive officers as a
group (14 persons)................................... 946,721(l) 5.4%
</TABLE>
- ---------------
(a) Information furnished by the directors and executive officers. Unless
otherwise indicated, such persons have sole voting and sole investment
power with respect to these shares. The number of shares reported as owned
through the Company's Employee Stock Savings Plan has been calculated based
upon such person's percentage interest in the total number of units
outstanding in Common Stock fund under such plan.
(b) Less than 1% unless otherwise indicated.
(c) This total includes 62,000 shares owned by Mr. Farrar pursuant to restricted
stock awards under the Company's Equity Incentive Plan for Key Employees
(the "Equity Incentive Plan"), 60,000 shares as to which Mr. Farrar holds
currently exercisable options to acquire under the Equity Incentive Plan
and 2,112 shares owned by Mr. Farrar through the Company's Employees Stock
Savings Plan.
(d) This total includes 80,000 shares as to which each such named individual
holds currently exercisable options to acquire under the Company's Equity
Incentive Plan for Outside Directors (the "1988 Director Plan") and 750
shares owned by such person pursuant to restricted stock awards under the
Company's 1995 Equity Incentive Plan for Outside Directors (the "1995
Director Plan").
(e) This total includes 80,000 shares as to which Mr. Gould holds currently
exercisable options to acquire under the 1988 Director Plan, 15,000 shares
held by a trust of which Mr. Gould is a trustee and settlor and 750 shares
owned by Mr. Gould pursuant to restricted stock awards under the 1995
Director Plan. This total also includes 200 shares that are held by Mr.
Gould's wife, and Mr. Gould disclaims beneficial ownership of these shares.
(f) This total includes 80,000 shares as to which Dr. Grosh holds currently
exercisable options to acquire under the 1988 Director Plan and 750 shares
owned by Dr. Grosh pursuant to restricted stock awards under the 1995
Director Plan. This total also includes 400 shares that are held by Dr.
Grosh's wife, and Dr. Grosh disclaims beneficial ownership of these shares.
(g) This total includes 40,000 shares as to which Mr. Van Leuven holds currently
exercisable options to acquire under the 1988 Director Plan, 16,000 shares
held by a trust of which Mr. Van Leuven is trustee and settlor and 750
shares owned by Mr. Van Leuven pursuant to restricted stock awards under
the 1995 Director Plan.
43
<PAGE> 48
(h) This total includes 31,429 shares as to which Mr. Brown holds currently
exercisable options to acquire under the Equity Incentive Plan and 3,936
shares owned by Mr. Brown through the Company's Employees Stock Savings
Plan.
(i) This total includes 58,750 shares as to which Mr. Carr holds currently
exercisable options to acquire under the Equity Incentive Plan and 3,983
shares owned by Mr. Carr through the Company's Employees Stock Savings
Plan.
(j) This total includes 30,755 shares as to which Mr. Lewis holds currently
exercisable options to acquire under the Equity Incentive Plan.
(k) This total includes 19,903 shares as to which Mr. Bird holds currently
exercisable options to acquire under the Equity Incentive Plan and 5,131
shares owned by Mr. Bird through the Company's Employees Stock Savings
Plan.
(l) This total includes the shares purchasable upon the exercise of the options
referred to in footnotes (c) through (k) above and an additional 30,662
shares purchasable upon the exercise of options by other executive officers
included in this group. This total also includes 2,000 shares that one of
the other executive officers included in this group holds jointly with his
wife.
44
<PAGE> 49
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1996; provided, however, that if the
Company, in its sole discretion, has extended the period of time during which
the Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $155,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1996, to all Holders of Old Notes
known to the Company. The Company's obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain customary conditions as set
forth under " -- Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under " -- Certain Conditions to the Exchange Offer". The
Company will give oral or written notice of any extension, amendment,
non-acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to IBJ Schroder Bank
& Trust Company (the "Exchange Agent") at one of the addresses set forth below
under " Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer ("a Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT RE-
45
<PAGE> 50
QUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must, prior
to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see " -- Withdrawal Rights"), as the case may be, must be guaranteed (see
" -- Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the registered
holder or holders appear on the Old Notes with the signature thereon guarantied
by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Note which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. None of the Company, the Exchange Agent or any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the Holder, and that neither the Holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. If any Holder or any such other person is
an "affiliate", as defined under Rule 405 of the Securities Act, of the Company
or is engaged in or intends to engage in, or has an arrangement or understanding
with any person to participate in, a distribution of such New Notes to be
acquired pursuant to
46
<PAGE> 51
the Exchange Offer, such Holder or any such other person (i) may not rely on the
applicable interpretation of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution". The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See " -- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company will be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive as set forth below under "Description of the Notes -- Book-Entry,
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from April 29, 1996. Old Notes accepted for exchange will cease
to accrue interest from and after the date of consummation of the Exchange
Offer. Holders whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer. If the Exchange Offer is not consummated by
September 26, 1996, the Notes will bear additional interest of 0.50% per annum
from and including September 26, 1996 until but excluding the date of
consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under " -- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
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<PAGE> 52
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to 5:00 P.M., New York City
time, on the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the Holder of Old Notes
and the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under " -- Exchange Agent". Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution in which case such guarantee will
not be required. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under " -- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such New Notes for exchange, any of the following
events shall occur:
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(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the SEC.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order is threatened by the SEC or in effect with respect
to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests or Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
IBJ Schroder Bank & Trust Company, Exchange Agent
By Mail:
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Department
By Hand or Overnight Courier:
One State Street
New York, New York 10004
Attn: Securities Processing Window -- SC1
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be $ .
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TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "Description of the Notes -- Exchange
Offer; Registration Rights". Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course or such holders'
business and such holders, other than broker-dealers, have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the Company or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution". In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified therein,
to register or qualify the New Notes for offer or sale under the securities laws
of such jurisdictions as any holder reasonably requests in writing. Unless a
holder so requests, the Company does not currently intend to register or qualify
the sale of the New Notes in any such jurisdictions. See "The Exchange Offer".
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DESCRIPTION OF THE NOTES
The Old Notes were issued under an Indenture, dated as of April 15, 1996
(the "Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as
Trustee (the "Trustee"). The New Notes also will be issued under the Indenture.
The Old Notes and New Notes will be treated as a single class of securities
under the Indenture.
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes are filed as exhibits to
the Registration Statement of which this Prospectus is a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture and the Notes,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended. Certain terms used
herein are defined below under "-- Certain Definitions". The term "Notes" means
the New Notes and the Old Notes treated as a single class.
GENERAL
Principal of and premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee, at One State
Street, New York, New York 10004), except that, at the option of the Company,
payment of interest may be made by check mailed to the address of the Holders as
such address appears in the Note register.
The Notes will be issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company, limited to $155 million aggregate principal amount,
and will mature on May 1, 2006. The New Notes will bear interest at the rate of
11 3/4% per annum from the most recent date to which interest has been paid on
the Old Notes or if no interest has been paid on the Old Notes, from April 29,
1996, payable semiannually to holders of record at the close of business on the
October 15 or April 15 immediately preceding the interest payment date on
November 1 and May 1 of each year, commencing November 1, 1996. Accordingly,
registered holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid, from April 29, 1996. Old
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders whose Old Notes are accepted
for exchange will not receive any payment in respect of interest on such Old
Notes otherwise payable on any interest payment date the record date for which
occurs on or after the consummation of the Exchange Offer. The Company will pay
interest on overdue principal at 1% per annum in excess of the interest rate
described above, and it will pay interest on overdue installments of interest at
such higher rate to the extent lawful. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months.
For each Old Note accepted for exchange the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
The interest rate on the Notes is subject to increase in certain
circumstances if the Registration Statement ceases to be effective as further
described under "-- Exchange Offer; Registration Rights".
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to May 1, 2001. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders
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<PAGE> 56
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
----------------------------------------------- ----------
<S> <C>
2001........................................... 106.00%
2002........................................... 104.00
2003........................................... 102.00
2004 and thereafter............................ 100.00
</TABLE>
Notwithstanding the foregoing, at any time and from time to time prior to
May 1, 1999, the Company may redeem in the aggregate up to $55 million principal
amount of the Notes with the proceeds of one or more Public Equity Offerings, at
a redemption price (expressed as a percentage of principal amount) of 110% plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least $100 million aggregate
principal amount of the Notes must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Old Notes constitutes, and the
indebtedness evidenced by the New Notes will constitute, general unsecured
obligations of the Company, but the payment of the principal of and premium, if
any, and interest on the Notes will be subordinate in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or cash equivalents
of all Specified Senior Indebtedness, whether outstanding on the Issue Date or
thereafter incurred. The maximum principal amount of Specified Senior
Indebtedness will initially be $175 million, will decrease if and when principal
payments are made under the term loan provisions of the Credit Agreement (as
defined herein) and may increase to the extent the borrowing base of the Company
and its subsidiaries exceeds $70 million, as described under "-- Certain
Covenants -- Limitation on Indebtedness". The Notes will in all respects rank
pari passu in right of payment with all existing and future Senior Indebtedness
of the Company (other than Specified Senior Indebtedness) and will be senior in
right of payment to all future subordinated indebtedness of the Company.
As of December 31, 1995, after giving pro forma effect to the Refinancing,
the Company's Specified Senior Indebtedness (all of which is secured) would have
been approximately $112.4 million, the Company would have been able to incur an
additional $62.6 million of Specified Senior Indebtedness, and the Company's
total Senior Indebtedness (including the Notes) would have been approximately
$267.4 million. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in certain instances,
such Indebtedness may be secured. See "-- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitations on Liens".
A portion of the operations of the Company are conducted through its
subsidiaries. Claims of creditors of any subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even if such obligations do not constitute
Specified Senior Indebtedness. In addition, the Specified Subsidiaries have
guaranteed all of the obligations of the Company under the Credit Agreement,
which guarantees are secured by substantially all the assets of the Specified
Subsidiaries. In certain circumstances, the Notes may be guaranteed by certain
future subsidiaries of the Company. Any such guarantees, however, will be
subordinate in right of payment to any Specified Senior Indebtedness of such
subsidiaries. See "-- Certain Covenants -- Future Guarantors". At December 31,
1995,
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<PAGE> 57
and after giving pro forma effect to the Refinancing, the total liabilities of
the Company's subsidiaries (other than guarantees by the Specified Subsidiaries
of obligations under the New Credit Agreement) would have been approximately
$116 million, including trade payables. Although the Indenture limits the
incurrence of Indebtedness and preferred stock of certain subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
Indenture does not impose any limitation on the incurrence by subsidiaries of
liabilities that are not considered Indebtedness under the Indenture. See
"-- Certain Covenants -- Limitation on Indebtedness and Preferred Stock of
Subsidiaries".
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"-- Defeasance" and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Specified Senior Indebtedness is not
paid when due or (ii) any other default on Specified Senior Indebtedness occurs
and the maturity of such Specified Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Specified Senior
Indebtedness has been paid in full in cash or cash equivalents. However, the
Company may pay the Notes without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
the Specified Senior Indebtedness with respect to which either of the events set
forth in clause (i) or (ii) of the immediately preceding sentence has occurred
and is continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Specified Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or after the expiration of any applicable
grace periods, the Company may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Specified Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Specified Senior Indebtedness has been
repaid in full in cash or cash equivalents). Notwithstanding the provisions
described in the immediately preceding sentence, unless the holders of such
Specified Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Specified Senior Indebtedness, the Company may
resume payments on the Notes after the end of such Payment Blockage Period. The
Notes shall not be subject to more than one Payment Blockage Period in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Specified Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Specified Senior
Indebtedness will be entitled to receive payment in full of such Specified
Senior Indebtedness before the Noteholders are entitled to receive any payment,
and until the Specified Senior Indebtedness is paid in full in cash or cash
equivalents, any payment or distribution to which Noteholders would be entitled
but for the subordination provisions of the Indenture will be made to holders of
such Specified Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Specified Senior Indebtedness and pay it over to them
as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Specified Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Specified
Senior Indebtedness may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Specified Senior Indebtedness
may recover less, ratably, than holders of Specified Senior Indebtedness and may
recover more, ratably, than the Noteholders.
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The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance".
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes to be issued upon consummation of
the Exchange Offer will be issued in the form of a Global Note. The Global Note
will be deposited with, or on behalf of, the Depository and registered in the
name of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial interests
in the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations which have accounts with the
Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the New
Notes represented by such Global Note to the accounts of participants. Ownership
of beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interests) and such participants (with
respect to the owners of beneficial interests in the Global Note other than
participants). The law of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related New Notes for
all purposes of such New Notes. Except as set forth below, owners of beneficial
interests in the Global Note will not be entitled to have the New Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated New Notes in definitive
form and will not be considered to be the owners or holders of any New Notes
under the Global Note. The Company understands that under existing industry
practice, in the event owners of beneficial interests in the Global Note desire
to take any action that the Depository, as the holder of the Global Note, is
entitled to take, the Depository would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial
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<PAGE> 59
interests in the Global Note held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of
such participants. The Company will not have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the Global Note for any New Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Beneficial owners of New Notes registered in the name of the Depository or
its nominee will be entitled to be issued, upon request, New Notes in definitive
certificated form.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes, in
denominations of $1,000 and integral multiples thereof if (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Global Note or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act, (ii) the Company in its discretion at
any time determines not to have all of the New Notes represented by the Global
Note or (iii) a Default entitling the Holders to accelerate the maturity thereof
has occurred and is continuing. Any New Note that is exchangeable pursuant to
the preceding sentence is exchangeable for certificated New Notes issuable in
authorized denominations and registered in such names as the Depository shall
direct. Subject to the foregoing, the Global Note is not exchangeable, except
for a Global Note of the same aggregate denomination to be registered in the
name of the Depository or its nominee.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company agreed pursuant to the Registration Rights Agreement (i) to
file the Registration Statement of which the Prospectus forms a part with the
SEC on or before May 29, 1996 and (ii) use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act by
August 26, 1996. The Company agreed to keep the Exchange Offer open for not less
than 30 days after the date notice of the Exchange Offer is mailed to the
holders of the Old Notes.
In the event the Exchange Offer is not consummated by September 26, 1996,
or, in accordance with the Registration Rights Agreement, if the Initial
Purchasers so request with respect to Old Notes not eligible to be exchanged for
New Notes in the Exchange Offer, or if any holder of Old Notes is not eligible
to participate in the Exchange Offer or does not receive freely tradeable New
Notes in the Exchange Offer, the Company will, at its cost, (a) as promptly as
practicable, file a registration statement (the "Shelf Registration Statement")
covering resales of the Old Notes or the New Notes, as the case may be, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until the earlier of (i) the time when the Old Notes covered by the
Shelf Registration Statement can be sold pursuant to Rule 144 under the
Securities Act without any limitations
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under clauses (c), (e), (f) and (h) of Rule 144 and (ii) three years after its
effective date. The Company will, in the event a Shelf Registration Statement is
filed, among other things, provide to each holder for whom such Shelf
Registration Statement was filed copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Old Notes or the New Notes,
as the case may be. A holder selling such Old Notes or New Notes pursuant to the
Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, would be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and would be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
The Registration Rights Agreement provides that if (i) by September 26,
1996, neither the Exchange Offer is consummated nor the Shelf Registration
Statement is declared effective; or (ii) after either the Registration Statement
or the Shelf Registration Statement is declared effective, such registration
statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Old Notes or New Notes in accordance
with and during the periods specified in the Registration Rights Agreement (each
such event referred to in clauses (i) and (ii) a "Registration Default"),
additional interest will accrue on the Notes at the rate of 0.50% per annum from
and including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. Such
interest is payable in addition to any other interest payable from time to time
with respect to the Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person, and, in the case of any such merger or consolidation, the
securities of the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation.
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Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization, each after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed in the event of a Change of Control); and
(4) the instructions determined by the Company, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described above, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under such covenant by
virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness,"
"-- Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries,"
"-- Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
The Credit Agreement generally prohibits the Company from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to the Company would constitute a default thereunder. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.
The provisions under the Indenture relative to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes then outstanding.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence, the
Consolidated Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is Incurred
prior to May 1, 1998 or 2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to the
Term Loan Provisions of the Credit Agreement or any other loan agreement or
other agreement in an aggregate principal amount that, when taken together with
the principal amount of all other Indebtedness Incurred pursuant to this clause
(1) and then outstanding, does not exceed (A) $105 million less (B) the
aggregate amount of all principal repayments of any such Indebtedness actually
made after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Indebtedness); (2) Indebtedness Incurred
pursuant to the Revolving Credit Provisions of the Credit Agreement or any other
loan agreement or other agreement; provided, however, that, after giving effect
to any such Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the greater of $70 million and the sum of (A) 50% of
the book value of the inventory of the Company and its Restricted Subsidiaries
(other than any Foreign Subsidiary that has Indebtedness then outstanding
Incurred pursuant to clause (d) of the covenant described under "-- Limitations
on Indebtedness and Preferred Stock of Restricted Subsidiaries") and (B) 85% of
the book value of the accounts receivables of the Company and its Restricted
Subsidiaries (other than any Foreign Subsidiary that has Indebtedness then
outstanding Incurred pursuant to clause (d) of the covenant described under
"-- Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries");
(3) Indebtedness owed to and held by a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of such Indebtedness (other than to
another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the Company; (4) the Notes; (5)
Indebtedness outstanding on the Issue Date (other than Indebtedness described in
clause (1), (2), (3) or (4) of this covenant); (6) Refinancing Indebtedness in
respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause
(4) or (5) or this paragraph (6); (7) Hedging Obligations directly related to
Indebtedness permitted to be Incurred by the Company pursuant to the Indenture;
(8) Indebtedness consisting of Guarantees of Indebtedness of a Foreign
Subsidiary Incurred pursuant to clause (d) of the covenant described under
"-- Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries";
and (9) Indebtedness in an aggregate principal amount which, together with all
other Indebtedness of the Company outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (8) above or paragraph
(a)) does not exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Company shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness of a Subsidiary of the Company Incurred solely to
Guarantee Indebtedness of the Company Incurred pursuant to clause (1) or
(2) of paragraph (b) of the covenant described under "-- Limitation on
Indebtedness";
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(b) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the Company
or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Indebtedness or Preferred Stock by the issuer thereof;
(c) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness or Preferred Stock Incurred in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); provided, however, that on the date of such
acquisition and after giving effect thereto, the Company would have been
able to Incur at least $1.00 of Indebtedness pursuant to clause (a) of the
covenant described under "-- Limitation on Indebtedness";
(d) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount that, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (d) (and any Indebtedness
Incurred by Foreign Subsidiaries prior to the Issue Date solely to finance
its working capital) and then outstanding does not exceed the sum of (i)
50% of the book value of the inventory of Foreign Subsidiaries that have
Indebtedness then outstanding and Incurred pursuant to this clause (d) and
(ii) 85% of the book value of the accounts receivable of Foreign
Subsidiaries that have Indebtedness then outstanding and Incurred pursuant
to this clause (d);
(e) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness described in clause (a), (b), (c) or (d) of this
paragraph);
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clause (c) or (e) or this clause (f);
provided, however, that to the extent such Refinancing Indebtedness
directly or indirectly Refinances Indebtedness or Preferred Stock of a
Subsidiary described in clause (c), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary; and
(g) a Subsidiary Guaranty.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); (2) the Company is not able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issuance or sale of
its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust established
by the Company or any of its Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or exchange); and (D)
an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted
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Subsidiary; provided, however, that the foregoing sum in clause (D) shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees); provided, however, that
(A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "-- Limitation on Indebtedness"; provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; or (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) make any loans or advances to the Company or (c) transfer any
of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary non
assignment provisions in leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease or the property leased thereunder;
(v) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (vi) any encumbrance or restriction imposed
solely upon a Foreign Subsidiary; and (vii) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and (except in the
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case of a Scheduled Asset Disposition) at least 85% of the consideration thereof
received by the Company or such Restricted Subsidiary is in the form of cash or
cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be) (A) first, to the extent the Company elects (or is required
by the terms of any Senior Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects, to
acquire Additional Assets within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (C) third, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A) and (B), to make an offer to the holders of the Notes (and to
holders of other Senior Indebtedness designated by the Company) to purchase
Notes (and such other Senior Indebtedness) pursuant to and subject to the
conditions contained in the Indenture; and (D) fourth, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to (x) the acquisition by the Company or any Wholly Owned
Subsidiary of Additional Assets or (y) the prepayment, repayment or purchase of
Indebtedness (other than any Disqualified Stock) of the Company (other than
Indebtedness owed to an Affiliate of the Company) or Indebtedness of any
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case within one year from the later of the receipt of such Net
Available Cash and the date the offer described in clause (b) below is
consummated; provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D) above
(other than such prepayment, repayment or purchase with the Net Available Cash
from a Scheduled Asset Disposition or such repayment or prepayment of
Indebtedness Incurred pursuant to clause (2) of paragraph (b) of the covenant
described under "-- Limitation on Indebtedness"), the Company or such Restricted
Subsidiary shall retire such Indebtedness and shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this paragraph, the Company and the Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this
paragraph except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this paragraph
exceed $10 million. Pending application of Net Available Cash pursuant to this
covenant, such Net Available Cash shall be invested in Permitted Investments or
applied to reduce outstanding Indebtedness described in paragraph (b)(2) of the
covenant described under "-- Limitation on Indebtedness".
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness) pursuant to clause (a)(ii)(C) above, the
Company will be required to purchase Notes tendered pursuant to an offer by the
Company for the Notes (and other Senior Indebtedness) at a purchase price of
100% of their principal amount (without premium) plus accrued but unpaid
interest (or, in respect of such other Senior Indebtedness, such lesser price,
if any, as may be provided for by the terms of such Senior Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
Notes (and any other Senior Indebtedness) tendered pursuant to such offer is
less than the Net Available Cash allotted to the purchase thereof, the Company
will be required to apply the remaining Net Available Cash in accordance with
clause (a)(ii)(D) above. The Company shall not be required to make such an offer
to purchase Notes (and other Senior Indebtedness) pursuant to this covenant if
the Net Available Cash available therefor is less than $10 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to any subsequent Asset Disposition).
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(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $2.5 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and (3) if such
Affiliate Transaction involves an amount in excess of $10 million, have been
determined by a nationally recognized investment banking firm to be fair, from a
financial standpoint to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $1
million in the aggregate outstanding at any one time, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries and (vi) any
Affiliate Transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, the Company and its Restricted Subsidiaries would own less
than 20% of the Voting Stock of such Restricted Subsidiary and have no greater
economic interest in such Restricted Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the obligations so
secured for so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "-- Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under
"-- Limitation on Liens", (ii) the net cash proceeds received by the Company or
any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are
at least equal to the fair value (as determined by the Board of Directors) of
such property and (iii) the Company applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Sale of Assets
and Subsidiary Stock".
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person
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organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form acceptable to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred and
be continuing, (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "-- Limitation on
Indebtedness"; (iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor Company in the case of a
conveyance, transfer or lease shall be released from its obligations under the
Indenture and with respect to the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or series
of transactions, all or substantially all of its assets to any Person unless:
(i) the resulting, surviving or transferee Person (if not such Subsidiary) shall
be a Person organized and existing under the laws of the jurisdiction under
which such Subsidiary was organized or under the laws of the United States of
America, or any State hereof or the District of Columbia, and such Person shall
expressly assume, by a guaranty agreement, in a form acceptable to the Trustee,
all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(ii) immediately after giving effect to such transaction or transactions on a
pro forma basis (and treating any Indebtedness which becomes an obligation of
the resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default
shall have occurred and be continuing; and (iii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such guaranty agreement, if any,
complies with the Indenture.
Future Guarantors. In the event that, after the Issue Date, a Subsidiary
(other than any Specified Subsidiary) Guarantees any Indebtedness of the Company
incurred pursuant to clause (1) or (2) of paragraph (b) of the covenant
described under "-- Limitation on Indebtedness", the Company shall cause such
Subsidiary to Guarantee the Notes pursuant to a Subsidiary Guaranty on the terms
and conditions set forth in the Indenture.
Specified Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, make any Investment in a Specified Subsidiary or
transfer any assets or other property to a Specified Subsidiary; provided,
however, the foregoing shall not prohibit the Company from providing treasury
functions to a Specified Subsidiary or the transfer of inventory and equipment,
furniture, computers and related equipment among the Company and such Specified
Subsidiaries, in each case in the ordinary course of business consistent with
past practices.
SEC Reports. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated
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Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Company to comply with its obligations
under "-- Certain Covenants -- Merger and Consolidation" above, (iv) the failure
by the Company to comply for 30 days after notice with any of its obligations in
the covenants described above under "-- Change of Control" (other than a failure
to purchase Notes) or under "-- Certain Covenants", under "-- Limitation on
Indebtedness", "-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries", "-- Limitation on Restricted Payments", "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "-- Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"-- Limitation on Affiliate Transactions", "-- Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries", "-- Limitation on Liens",
"-- Limitation on Sale/Leaseback Transactions", "-- Future Guarantors",
"-- Specified Subsidiaries" or "-- SEC Reports", (v) the failure by the Company
to comply for 60 days after notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million (the "cross acceleration
provision"), (vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii)
any judgment or decree for the payment of money in excess of $5 million is
rendered against the Company or a Significant Subsidiary, remains outstanding
for a period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision") or (ix) a
Subsidiary Guaranty ceases to be in full force and effect (other than in
accordance with the terms of such Subsidiary Guaranty) or a Subsidiary Guarantor
denies or disaffirms its obligations under its Subsidiary Guaranty. However, a
default under clauses (iv), (v) and (viii) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if
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it determines that withholding notice is not opposed to the interest of the
holders of the Notes. In addition, the Company is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of such holder of the Notes to receive payment
of principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require such holder's consent or in the waiver provisions,
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect such holder or (ix) make any change in any Subsidiary
Guaranty that could adversely affect such holder.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the holders of the Notes or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any holder of the Notes or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act. However, no amendment may be made
to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Specified Senior Indebtedness then outstanding unless
the holders of such Specified Senior Indebtedness (or their Representative)
consent to such change in accordance with the terms governing such Specified
Senior Indebtedness.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment
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default provision described under "-- Defaults" above and the limitations
contained in clauses (iii) and (iv) under "-- Certain Covenants -- Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor,
if any, will be released from all of its obligations with respect to its
Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the law of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
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purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (y) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary and (z) for purposes of the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments").
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Banks" means the "Lenders" as defined in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated
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Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (3) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(2) or (3) above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases and one-third of the rental expense attributable
to operating leases, (ii) amortization of debt discount (including any original
issue discount) and debt issuance cost, (iii) capitalized interest, (iv)
non-cash interest expenses, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion
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contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid to a
Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(B) the Company's equity in a net loss of any such Person for such period shall
be included in determining such Consolidated Net Income; (ii) any net income (or
loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the exclusion contained
in clause (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain (but not loss) realized
upon the sale or other disposition of any assets of the Company or its
consolidated Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person; (v) extraordinary gains or
losses; and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means, collectively, the Credit Agreement dated as of
April 29, 1996, among the Company, the Specified Subsidiaries, the financial
institutions from time to time party thereto as Lenders and Issuing Banks,
Citicorp USA, Inc., in its separate capacity as agent for the Lenders and
Issuing Banks, as the same may from time to time be amended, renewed,
supplemented or otherwise modified at the option of the parties thereto and any
other agreement pursuant to which any of the Indebtedness, commitments,
obligations, costs, expenses, fees, reimbursements and other indemnities payable
or owing thereunder may be refinanced, restructured, renewed, extended, refunded
or increased, as any such other agreement may from time to time at the option of
the parties thereto be amended, supplemented, renewed or otherwise modified.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
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Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "Change of Control" and under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock".
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense and (c) amortization expense, in each case for
such period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 80% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with GAAP)
are located in, generated from or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a
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correlative meaning. The accretion of principal of a non-interest bearing or
other discount security shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date; provided, however, that the amount outstanding at any
time of any Indebtedness Incurred with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or (ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary or whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshalling of assets or liabilities of the Company.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the
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Company's "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Old Notes were originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be, repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; provided, however, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition as permitted pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(ix) Investments in joint ventures conducting a Related Business primarily
outside of the United States; provided, however, that (A) so long as the Company
holds its investment as of the Issue Date in Roltra-Morse SpA and, through such
investment, the business conducted as of the Issue Date by Roltra-Morse SpA and
its subsidiaries, such Investments shall not exceed $15 million at any time
outstanding and (B) in the event that the Company no longer holds such
investment in Roltra-
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Morse SpA and such business conducted by Roltra-Morse and its subsidiaries, such
Investments shall not exceed $5 million at any time outstanding unless, at the
time such Investment is made, the Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness", in which case such Investments shall not exceed
$10 million at any time outstanding; and (x) other Investments that do not
exceed $1 million at any time outstanding.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review; (c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions to,
property of such Person; provided, however, that the Lien may not extend to any
other property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred, and the Indebtedness secured by the Lien may not be Incurred
more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation of
the property subject to the Lien; (g) Liens to secure Indebtedness permitted
under the provisions described in clauses (b)(1) and (b)(2) under "-- Certain
Covenants -- Limitation on Indebtedness" and Indebtedness permitted under the
provisions described in clause (a) under "-- Certain Covenants -- Limitations on
Indebtedness and Preferred Stock of Restricted Subsidiaries"; (h) Liens existing
on the Issue Date; (i) Liens on property or shares of Capital Stock of another
Person at the time such other Person becomes a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Lien may not extend to any
other property owned by such Person or any of its Subsidiaries; (j) Liens on
property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that such
Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (k) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of
such Person; (l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under the
Indenture, secured by a Lien on the same property securing such Hedging
Obligations; (m) Liens on inventory and accounts receivable (and the proceeds
thereof) of a Person and Capital Stock of or held, directly or indirectly, by
such Person, in each case securing Indebtedness Incurred by such Person pursuant
to clause (d) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries"; (n) purchase money Liens up to an aggregate at any time
outstanding of $5 million upon or in any property acquired or held by such
Person in the ordinary course of business to secure the purchase price of such
property; and (o) Liens to secure any Refinancing (or successive Refinancings)
as a whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (h), (i) and (j); provided, however,
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that (x) such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement. Notwithstanding the
foregoing, "Permitted Liens" will not include any Lien described in clauses (f),
(i) or (j) above to the extent such Lien applies to any Additional Assets
acquired directly or indirectly from Net Available Cash pursuant to the covenant
described under "-- Certain Covenants -- Limitation on Sale of Assets and
Subsidiary Stock".
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or is to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Specified Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with
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any merger or consolidation involving such Person) or similar payment to the
direct or indirect holders of its Capital Stock (other than dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock)) and dividends or distributions payable solely to the Company or a
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the Company
held by any Person or of any Capital Stock of a Restricted Subsidiary held by
any Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to the
Company a revolving credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person; provided, however, that such a transfer and lease
will not constitute a Sale/Leaseback Transaction if such transfer occurs and
such lease is entered into within 60 days of the acquisition of the subject
property by the Company.
"Scheduled Asset Dispositions" means an Asset Disposition of certain real
property or other assets of the Company held for sale and set forth on a
schedule to the Indenture.
"Senior Indebtedness" with respect to any Person means (i) the Notes, (ii)
Indebtedness of such Person, whether outstanding on the Issue Date or thereafter
Incurred and (iii) accrued and unpaid interest (including Post-Petition
Interest) in respect of (A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are subordinate in
right of payment to the Notes or the applicable Subsidiary Guaranty, as the case
may be; provided, however, that Senior Indebtedness shall not include (1) any
obligation of such Person to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by such Person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person (other than
Indebtedness that is subordinate or junior only to Specified Senior
Indebtedness) or (5) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of the Indenture; provided, however, that in
the case of this clause (5), any Indebtedness issued to a Person who had no
actual knowledge that the issuance of such Indebtedness was not permitted under
the Indenture and who received on the date of issuance thereof a certificate
from an officer of the Company to the effect that the issuance of such
Indebtedness would not violate the Indenture will constitute Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Specified Senior Indebtedness" means, (i) with respect to the Company,
Indebtedness of the Company Incurred pursuant to clause (1) or (2) of paragraph
(b) of the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness", and, (ii) with respect to any Subsidiary Guarantor, Indebtedness
of such Subsidiary Guarantor Incurred pursuant to paragraph (a) of the covenant
described under "-- Certain
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Covenants -- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries", in the case of each of clause (i) and (ii), together with accrued
and unpaid interest (including Post-Petition Interest) in respect of such
Indebtedness and any costs, expenses, fees, reimbursements, indemnities and
other obligations of the Company or any Restricted Subsidiary under the Credit
Agreement.
"Specified Subsidiaries" means Warren Pumps, Inc. and Varo, Inc., each a
wholly owned subsidiary of the Company.
"Stated Maturity" means, with respect to any security or obligation, the
date specified in such security or obligation as the fixed date on which the
final payment of principal of such security or obligation is due and payable,
including, in the case of Preferred Stock, pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which by its terms
provides that it is subordinate or junior in right of payment to the Notes.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means each Person that delivers a Subsidiary
Guaranty.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes, which Guarantee will be
subordinated to Specified Senior Indebtedness of such Subsidiary Guarantor on
substantially the same terms as the Notes are subordinated to Specified Senior
Indebtedness of the Company and which Guarantee shall remain in effect only so
long as such Subsidiary Guarantor is Guaranteeing Indebtedness pursuant to
clause (a) of the covenant described under "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries."
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
and Poor's Ratings Group, and (v) investments in securities with maturities of
six months or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make term loans available
to the Company.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF NEW CREDIT AGREEMENT
The Company entered into the New Credit Agreement contemporaneously with
the issuance of the Old Notes. The following summary describes certain
provisions of the New Credit Agreement, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to and is
qualified in its entirety by reference to the New Credit Agreement.
Borrower. The Company is the only borrower under the New Credit Agreement.
Use Of Proceeds. The initial advances under the New Credit Agreement were
used (i) to retire the outstanding obligations under the Old Credit Agreement,
(ii) to retire a portion of the principal amount of the Old Debentures and (iii)
for refinancing costs.
Commitment. The senior secured credit facilities under the New Credit
Agreement consist of (i) a $70.0 million five-year revolving credit facility,
including a letter of credit subfacility in an amount not to exceed $40.0
million; (ii) a $25.0 million five-year amortizing term loan ("Term Loan A");
(iii) a $35.0 million five-year amortizing term loan ("Term Loan B"); and (iv) a
$45.0 million seven-year amortizing term loan ("Term Loan C").
Amortization. Term Loan A is payable in equal quarterly installments
aggregating $5,000,000 per annum, beginning on July 31, 1996 and maturing on
April 30, 2001. Term Loan B is payable in equal quarterly installments
aggregating $8,750,000 per year beginning on July 31, 1997 and maturing on April
30, 2001. Term Loan C is payable in equal quarterly installments aggregating (i)
$500,000 per year beginning on July 31, 1996 through April 30, 2001 and (ii)
$21,250,000 per year beginning on July 31, 2001 and maturing on April 30, 2003.
Interest. At the Company's option, advances will be available at varying
London Interbank Offered Rates ("LIBOR") and Citibank, N.A. base rate interest
rates with LIBOR advances ranging from LIBOR plus 2.50%-3.00% and base rate
loans ranging from Citibank's base rate plus 1.00%-1.50%. The LIBOR Rate will be
fixed for interest periods of 1, 2, 3 or 6 months. After the later of one year
from the Issue Date and repayment in full of Term Loan B, the margin on the
revolving credit facility and the $25 million five-year term loan may change
based on the Company's financial performance.
Security. The obligations of the Company are secured by a first priority
security interest on substantially all present and future assets of the Company,
including the stock of the Company's significant domestic subsidiaries and 65%
of the stock of the Company's significant foreign subsidiaries.
Guarantees. The obligations of the Company are guaranteed by Warren Pumps,
Inc. and Varo, Inc., each a wholly owned subsidiary of the Company, and, to the
extent permitted, any future newly created significant domestic subsidiaries of
the Company (the "Guarantors"). The guaranties are secured by a first priority
security interest on substantially all of the assets of each Guarantor.
Restrictive and Financial Covenants. The New Credit Agreement contains
customary financial covenants including a ratio of maximum permitted senior
indebtedness to EBITDA; a ratio of maximum permitted total indebtedness to
EBITDA; minimum interest coverage ratio; minimum fixed charge coverage ratio; a
limitation on capital expenditures and a minimum net worth. The New Credit
Agreement also contains limitations on, among other things, liens, mergers,
changes in conduct of business, creation of subsidiaries, dividends, capital
leases, indebtedness or guarantees, restricted payments, sale or transfer of
assets, transactions with affiliates and prepayments or repurchase of
indebtedness.
Mandatory Prepayments. The Company is required to make mandatory
prepayments of loans in amounts, at times and subject to exceptions to be agreed
upon, (i) in respect of 75% of consolidated excess cash flow of the Company and
its subsidiaries, (ii) in respect of 100% of the net proceeds of certain
dispositions of assets or the incurrence of certain indebtedness by the Company
and the Guarantors and (iii) in respect of 50% of the net proceeds of certain
dispositions of stock of the Company and the Guarantors.
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Events of Default. The New Credit Agreement contains customary events of
default including failure to pay principal or interest or fees when due, any
representation or warranty being materially incorrect when made, the failure to
perform or timely observe covenants set forth therein, cross-defaults to other
indebtedness (including the Notes) and the occurrence of certain events having a
material adverse effect on the Company's financial condition, operations or
performance. Upon the occurrence and during the continuance of an Event of
Default under the New Credit Agreement, the Lenders may terminate their
commitments to make new loans, declare the then outstanding loans due and
payable and demand cash collateral for outstanding letters of credit.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the acquisition, ownership and disposition of the
New Notes. This discussion is a summary for general information only and does
not consider all aspects of U.S. federal income tax that may be relevant to the
purchase, ownership and disposition of the New Notes by a prospective investor
in light of such investor's personal circumstances. This discussion also does
not address the U.S. federal income tax consequences of ownership of New Notes
not held as capital assets within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), or the U.S. federal
income tax consequences to investors subject to special treatment under the U.S.
federal income tax laws, such as dealers in securities or foreign currency,
tax-exempt entities, banks, thrifts, insurance companies, persons that hold the
New Notes as part of a "straddle", a "hedge" against currency risk or a
"conversion transaction", persons that have a "functional currency" other than
the U.S. dollar, and investors in pass-through entities. In addition, this
discussion is generally limited to the tax consequences to initial holders. It
does not describe any tax consequences arising out of the tax laws of any state,
local or foreign jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing is subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.
PROSPECTIVE HOLDERS OF THE NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United States,
(ii) a corporation organized under the laws of the United States or any
political subdivision thereof or therein or (iii) an estate or trust, the income
of which is subject to U.S. federal income tax regardless of the source (a "U.S.
Holder"). Certain U.S. federal income tax consequences relevant to a holder
other than a U.S. Holder are discussed separately below.
EXCHANGE OFFER
The exchange of the Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for federal income tax purposes. As a result,
there should be no federal income tax consequences to U.S. Holders exchanging
the Old Notes for the New Notes pursuant to the Exchange Offer.
STATED INTEREST
Interest on a New Note will be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with such
holder's method of accounting for tax purposes.
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MARKET DISCOUNT
If a New Note is acquired at a "market discount", some or all of any gain
realized upon a sale or other disposition or payment at maturity, or some or all
of a partial principal payment, of such Note may be treated as ordinary income,
as described below. For this purpose, "market discount" is the excess (if any)
of the stated redemption price at maturity over the purchase price, subject to a
statutory de minimis exception. Unless a U.S. Holder has elected to include the
market discount in income as it accrues, any gain realized on any subsequent
disposition of such Note (other than in connection with certain nonrecognition
transactions) or payment at maturity, or some or all of any partial principal
payment with respect to such Note, will be treated as ordinary income to the
extent of the market discount that is treated as having accrued during the
period such Note was held.
The amount of market discount treated as having accrued will be determined
either (i) on a ratable basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the New Note was held by
the U.S. Holder and the denominator of which is the total number of days after
the date such U.S. Holder acquired the New Note up to and including the date of
its maturity or (ii) if the U.S. Holder so elects, on a constant interest rate
method. A U.S. Holder may make that election with respect to any New Note but,
once made, such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to the
extent of accrued market discount at the time of disposition, a U.S. Holder of a
New Note acquired at a market discount may elect to include market discount in
income currently, through the use of either the ratable inclusion method or the
elective constant interest method. Once made, the election to include market
discount in income currently applies to all Notes and other obligations held by
the U.S. Holder that are purchased at a market discount during the taxable year
for which the election is made, and all subsequent taxable years of the U.S.
Holder, unless the Internal Revenue Service (the "Service") consents to a
revocation of the election. If an election is made to include market discount in
income currently, the basis of the New Note in the hands of the U.S. Holder will
be increased by the market discount thereon as it is included in income.
Unless a U.S. Holder who acquires a New Note at a market discount elects to
include market discount in income currently, such U.S. Holder may be required to
defer deductions for any interest paid on indebtedness allocable to such Notes
in an amount not exceeding the deferred income until such income is realized.
BOND PREMIUM
If a U.S. Holder purchases a New Note and immediately after the purchase
the adjusted basis of the New Note exceeds the sum of all amounts payable on the
instrument after the purchase date (other than qualified stated interest), the
New Note has "bond premium." A U.S. Holder may elect to amortize such bond
premium over the remaining term of such Note (or, in certain circumstances,
until an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the New Note's yield to maturity. If
such an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will receive a tax benefit from the premium
only in computing such Holder's gain or loss upon the sale or other disposition
or payment of the principal amount of the New Note.
An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or are thereafter acquired, and may be
revoked only with the consent of the Service.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the disposition of a New Note by sale, exchange or redemption, a U.S.
Holder will generally recognize gain or loss equal to the difference between (i)
the amount realized on the disposition (other than
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amounts attributable to accrued interest) and (ii) the U.S. Holder's tax basis
in the New Note. A U.S. Holder's tax basis in a New Note generally will equal
the cost of the Note (net of accrued interest) to the U.S. Holder increased by
amounts includible in income as market discount (if the holder elects to include
market discount on a current basis) and reduced by any amortized bond premium
and any payments other than payments of qualified stated interest made on such
Note.
Assuming the New Note is held as a capital asset, such gain or loss (except
to the extent that the market discount rules otherwise provide) will generally
constitute capital gain or loss and will be long-term capital gain or loss if
the U.S. Holder has held such New Note for longer than one year.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is not (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein or (iii) an
estate or trust, the income of which is subject to U.S. federal income tax
regardless of the source (a "Non-U.S. Holder").
This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the New Notes by any particular Non-U.S. Holder in light of such Holder's
personal circumstances, including holding the New Notes through a partnership.
For example, persons who are partners in foreign partnerships and beneficiaries
of foreign trusts or estates who are subject to U.S. federal income tax because
of their own status, such as United States residents or foreign persons engaged
in a trade or business in the United States, may be subject to U.S. federal
income tax even though the entity is not subject to income tax on the
disposition of its New Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the New Note will be considered "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a U.S. permanent establishment (or to a fixed base) in the
United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a New Note that is not
U.S. trade or business income will not be subject to United States tax if the
interest qualifies as "portfolio interest." Generally, interest on the New Notes
will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total voting power of all voting stock
of the Company and is not a "controlled foreign corporation" with respect to
which the Company is a "related person" within the meaning of the Code, and (ii)
the beneficial owner, under penalty of perjury, certifies that the beneficial
owner is not a United States person and such certificate provides the beneficial
owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. rates rather than the 30%
gross rate. To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is U.S. trade or business income, the Non-U.S.
Holder must provide a properly executed Form 1001 or 4224 (or such successor
forms as the IRS designates), as applicable, prior to the payment of interest.
These forms must be periodically updated. Under proposed regulations, the Forms
1001 and 4224 will be replaced by Form W-8. Also under proposed regulations, a
Non-U.S. Holder who is claiming the benefits of a treaty may be required to
obtain a U.S. taxpayer identification number and to provide certain documentary
evidence issued by foreign governmental authorities to prove residence in the
foreign country. Certain special procedures are provided in the proposed
regulations for payments through qualified intermediaries.
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SALE, EXCHANGE OR REDEMPTION OF NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a New Note generally will not be subject to U.S. federal income
tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the New Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition, or (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates.
FEDERAL ESTATE TAX
New Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax provided that the individual does not actually or constructively own
10% or more of the total voting power of all voting stock of the Company and
income on the Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S. Holder
any interest that is subject to withholding or that is exempt from U.S.
withholding tax pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the New Notes by the Company to a
Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the holder is
a United States person or that the conditions of any other exemption are not, in
fact, satisfied).
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
Holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for U.S. federal income tax purposes or (ii) a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
Proposed regulations provide similar rules, but in the case of payment of
proceeds inside the United States, may require an additional certification that
the beneficial owner has not and does not expect to be present in the United
States for a period of 183 days or more during the year.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has agreed, pursuant to the Registration Rights Agreement, to
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel for all the holders of the Notes as a single class) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the New Notes in Canada is being made only on a private
equity placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of New Notes are effected. Accordingly, any resale of the New Notes
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the New Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of New Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such New Notes without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
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RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
recent decision of the U.S. Supreme Court, it is possible that Ontario
purchasers will not be able to rely upon the remedies set out in Section 12(2)
of the United States Securities Act of 1933 if the securities are being offered
under a U.S. private equity placement memorandum.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of New Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any Notes
acquired by such purchaser pursuant to this Offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
LEGAL MATTERS
Certain legal matters relating to the New Notes offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP (a limited liability
partnership including professional corporations), New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
84
<PAGE> 89
IMO INDUSTRIES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Consolidated Statements of Income -- For the years ended
December 31, 1995, 1994 and 1993................................................. F-2
Consolidated Balance Sheets -- December 31, 1995 and 1994.......................... F-3
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1995, 1994 and 1993................................................. F-4
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 1995, 1994 and 1993................................................. F-5
Notes to Consolidated Financial Statements......................................... F-6
Report of Independent Auditors..................................................... F-28
Quarterly Financial Information.................................................... F-29
</TABLE>
F-1
<PAGE> 90
IMO INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994* 1993*
---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Sales.............................................. $ 373,227 $ 360,785 $ 416,526
Cost of products sold.................................. 258,335 248,835 284,227
--------- --------- ---------
GROSS PROFIT........................................... 114,892 111,950 132,299
Selling, general and administrative expenses........... 80,964 77,973 102,916
Research and development expenses...................... 4,831 4,646 7,537
Unusual items.......................................... 9,020 -- 14,338
--------- --------- ---------
INCOME FROM OPERATIONS................................. 20,077 29,331 7,508
Interest expense....................................... 25,860 29,168 33,341
Interest income........................................ (1,980) (1,592) (511)
Other income........................................... (739) (219) (1,074)
Equity in (income) loss of unconsolidated companies.... (302) -- 231
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
AND EXTRAORDINARY ITEM............................... (2,762) 1,974 (24,479)
Income taxes (benefit):
Current.............................................. 2,209 1,790 --
Deferred............................................. (17,000) -- 13,450
--------- --------- ---------
Total Income Taxes (Benefit)......................... (14,791) 1,790 13,450
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM................................... 12,029 184 (37,929)
Discontinued Operations:
Income (Loss) from Operations (net of income tax
expense of $.9 million in 1995, $1.4 million in
1994 and $1.5 million in 1993).................... 500 9,046 (46,528)
Estimated Gain (Loss) on Disposal (net of income taxes
of $5.2 million in 1995)............................. 21,625 -- (168,014)
--------- --------- ---------
Total Income (Loss) from Discontinued
Operations................................. 22,125 9,046 (214,542)
--------- --------- ---------
Extraordinary Item -- Loss on Extinguishment of Debt... (4,444) (5,299) (18,095)
--------- --------- ---------
NET INCOME (LOSS)...................................... $ 29,710 $ 3,931 $ (270,566)
========= ========= =========
EARNINGS (LOSS) PER SHARE:
Continuing operations before extraordinary item...... $ .71 $ .01 $ (2.25)
Discontinued operations.............................. $ 1.29 $ .53 $ (12.70)
Extraordinary item................................... $ (.26) $ (.31) $ (1.07)
--------- --------- ---------
Net income (loss).................................... $ 1.74 $ .23 $ (16.02)
--------- --------- ---------
Weighted average number of shares outstanding.......... 17,048,622 16,926,071 16,890,501
========= ========= =========
</TABLE>
- ---------------
* Reclassified to conform to 1995 presentation.
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 91
IMO INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994*
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................... $ 3,809 $ 26,942
Trade accounts and notes receivable, less allowance of $2,030 in
1995 and $2,192 in 1994.......................................... 53,965 53,909
Inventories -- net.................................................. 85,030 76,902
Deferred income taxes............................................... 11,371 4,328
Net assets of discontinued operations -- current.................... 5,220 75,165
Prepaid expenses and other current assets........................... 4,617 5,089
-------- --------
TOTAL CURRENT ASSETS........................................ 164,012 242,335
Property, Plant and Equipment -- on the basis of cost
Land.................................................................. 10,407 5,930
Buildings and improvements............................................ 44,786 40,449
Machinery and equipment............................................... 109,156 102,730
-------- --------
164,349 149,109
Less allowances for depreciation and amortization..................... (82,996) (71,867)
-------- --------
Net Property, Plant and Equipment..................................... 81,353 77,242
Intangible Assets, Principally Goodwill............................... 68,664 73,834
Investments in and Advances to Unconsolidated Companies............... 5,415 3,653
Deferred income taxes -- Long-Term.................................... 4,609 --
Net Assets of Discontinued Operations -- Noncurrent................... 29,190 89,313
Other Assets.......................................................... 30,644 26,242
-------- --------
TOTAL ASSETS................................................ $383,887 $512,619
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable......................................................... $ 9,019 $ 9,699
Trade accounts payable................................................ 23,733 22,012
Accrued expenses and other liabilities................................ 38,069 51,620
Accrued costs related to discontinued operations...................... 3,055 6,444
Income taxes payable.................................................. 8,354 6,671
Current portion of long-term debt..................................... 805 13,675
-------- --------
TOTAL CURRENT LIABILITIES................................... 83,035 110,121
Long-Term Debt........................................................ 245,802 372,365
Deferred Income Taxes................................................. -- 7,364
Accrued Postretirement Benefits -- Long-Term.......................... 24,372 30,918
Accrued Pension Expense and Other Liabilities......................... 23,794 17,696
-------- --------
TOTAL LIABILITIES........................................... 377,003 538,464
SHAREHOLDERS' EQUITY
Preferred stock: $1.00 par value; authorized and unissued 5,000,000
shares.............................................................. -- --
Common stock: $1.00 par value; authorized 25,000,000 shares; issued
18,756,397 and 18,680,428 in 1995 and 1994, respectively............ 18,756 18,680
Additional paid-in capital............................................ 80,275 79,789
Retained earnings (deficit)........................................... (76,592) (106,302)
Cumulative foreign currency translation adjustments................... 4,266 861
Minimum pension liability adjustment.................................. (1,801) (853)
Treasury stock at cost -- 1,672,788 shares in 1995 and 1994........... (18,020) (18,020)
-------- --------
TOTAL SHAREHOLDERS' EQUITY.................................. 6,884 (25,845)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $383,887 $512,619
======== ========
</TABLE>
- ---------------
* Restated to conform to 1995 presentation.
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 92
IMO INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994* 1993*
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................ $ 29,710 $ 3,931 $(270,566)
Adjustments to reconcile net income (loss) to net cash (used
by) provided by continuing operations:
Discontinued operations.................................... (22,125) (9,046) 214,542
Depreciation............................................... 12,100 12,771 15,325
Amortization............................................... 3,122 5,832 4,471
Provision (credit) for deferred income taxes............... (17,000) -- 13,450
Extraordinary item......................................... 4,444 5,299 18,095
Unusual items.............................................. 9,020 -- 14,338
Other...................................................... 172 666 1,243
Other changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable.... 236 (1,557) 9,491
(Increase) decrease in inventories...................... (7,157) (368) 7,198
Decrease in recoverable income taxes.................... -- 3,826 7,270
(Decrease) increase in accounts payable and accrued
expenses.............................................. (13,273) (9,160) 7
Other operating assets and liabilities.................. (9,014) (5,387) (8,846)
--------- -------- --------
Net cash (used by) provided by continuing operations....... (9,765) 6,807 26,018
Net cash (used by) provided by discontinued operations..... (21,978) 9,971 986
--------- -------- --------
Net Cash (Used in) Provided by Operating Activities.......... (31,743) 16,778 27,004
INVESTING ACTIVITIES
Net proceeds from sale of businesses and sales of property,
plant and equipment........................................ 174,922 13,568 86,619
Purchases of property, plant and equipment................... (14,600) (6,025) (6,343)
Acquisitions, net of cash acquired........................... (5,247) -- --
Net investing activities of discontinued operations.......... (9,426) (6,994) (9,724)
Other........................................................ (122) (857) 252
--------- -------- --------
Net Cash Provided by (Used in) Investing Activities.......... 145,527 (308) 70,804
--------- -------- --------
FINANCING ACTIVITIES
(Decrease) increase in notes payable......................... 5,407 (31,346) (29,915)
Proceeds from long-term borrowings........................... 45,461 86,951 4,377
Principal payments on long-term debt......................... (188,200) (56,759) (55,575)
Payment of debt financing costs.............................. (401) (11,277) (8,326)
Proceeds from stock options exercised........................ 535 415 --
Other........................................................ 59 15 (318)
--------- -------- --------
Net Cash Used in Financing Activities........................ (137,139) (12,001) (89,757)
--------- -------- --------
Effect of exchange rate changes on cash...................... 222 117 (462)
--------- -------- --------
(Decrease) increase in Cash and Cash Equivalents............. (23,133) 4,586 7,589
Cash and cash equivalents at beginning of year............... 26,942 22,356 14,767
--------- -------- --------
Cash and Cash Equivalents at End of Year..................... $ 3,809 $ 26,942 $ 22,356
========= ======== ========
</TABLE>
- ---------------
* Reclassified to conform to 1995 presentation.
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 93
IMO INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN MINIMUM
ADDITIONAL RETAINED CURRENCY PENSION
COMMON PAID-IN EARNINGS TRANSLATION LIABILITY TREASURY
STOCK CAPITAL (DEFICIT) ADJUSTMENT ADJUSTMENT STOCK TOTAL
------- ---------- --------- ---------- ---------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993*................. $18,554 $ 78,557 $ 160,333 $ 491 $ -- $(18,020) $ 239,915
Net loss................ -- -- (270,566) -- -- -- (270,566)
Foreign currency
translation
adjustments........... -- -- -- (1,638) -- -- (1,638)
Minimum pension
liability
adjustment............ -- -- -- -- (1,768) -- (1,768)
Issuance of common stock
warrants.............. -- 336 -- -- -- -- 336
Restricted shares issued
under the equity
incentive plan........ 30 187 -- -- -- -- 217
------- ------- ---------- -------- -------- --------- ---------
Balance at December 31,
1993*................. 18,584 79,080 (110,233) (1,147) (1,768) (18,020) (33,504)
Net income.............. -- -- 3,931 -- -- -- 3,931
Foreign currency
translation
adjustments........... -- -- -- 2,008 -- -- 2,008
Minimum pension
liability
adjustment............ -- -- -- -- 915 -- 915
Shares issued under
stock option plan..... 56 359 -- -- -- -- 415
Restricted shares issued
under the equity
incentive plan........ 40 350 -- -- -- -- 390
------- ------- ---------- -------- -------- --------- ---------
Balance at December 31,
1994*................. 18,680 79,789 (106,302) 861 (853) (18,020) (25,845)
Net income.............. -- -- 29,710 -- -- -- 29,710
Foreign currency
translation
adjustments........... -- -- -- 3,405 -- -- 3,405
Minimum pension
liability
adjustment............ -- -- -- -- (948) -- (948)
Shares issued under
stock option plan..... 73 462 -- -- -- -- 535
Restricted shares issued
under the equity
incentive plan........ 3 24 -- -- -- -- 27
------- ------- ---------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31,
1995.................. $18,756 $ 80,275 $ (76,592) $ 4,266 $ (1,801) $(18,020) $ 6,884
======= ======= ========== ======== ======== ========= =========
</TABLE>
- ---------------
* Reclassified to conform to current year presentation.
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 94
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of the Company and its majority-owned subsidiaries. Significant intercompany
transactions have been eliminated in consolidation. The Company uses the equity
method to account for investments in corporations in which it does not own a
majority voting interest.
Translation of Foreign Currencies: Assets and liabilities of international
operations are translated into U.S. dollars at current exchange rates. Income
and expense accounts are translated into U.S. dollars at average rates of
exchange prevailing during the year. Translation adjustments are reflected as a
separate component of shareholders' equity.
Cash Equivalents: Cash equivalents include investments in government
securities funds and certificates of deposit. Investment periods are generally
less than one month.
Financial Instruments: The Company uses forward exchange contracts to
hedge certain firm foreign commitments denominated in foreign currencies. Gains
or losses on forward contracts are deferred and offset against the foreign
exchange gains and losses on the underlying hedged item. The forward exchange
contracts are for periods of less than one year, and the amounts outstanding as
well as gains or losses on such contracts are not material.
Inventories: Inventories are carried at the lower of cost or market, cost
being determined principally on the basis of standards which approximate actual
costs on the first-in, first-out method.
Revenue Recognition: Revenues are recorded generally when the Company's
products are shipped.
Depreciation and Amortization: Depreciation and amortization of plant and
equipment are computed principally by the straight-line method.
Interest Expense: Interest expense incurred during the construction of
facilities and equipment is capitalized as part of the cost of those assets.
Total interest paid by the Company amounted to $39.5 million in 1995, $49.5
million in 1994 and $56.7 million in 1993. There was no interest capitalized in
1995. Interest capitalized in 1994 and 1993 was $.2 million and $.1 million,
respectively.
Earnings Per Share: Earnings per share are based upon the weighted average
number of shares of common stock outstanding. Common stock equivalents related
to stock options are excluded because their effect is not material.
Impact of Recently Issued Accounting Standards: In March 1995, the FASB
issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to
Be Disposed Of", which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
Stock Compensation: The Company grants stock options and shares of
restricted stock to certain employees under its Equity Incentive Plan. The stock
options are for a fixed number of shares and have an exercise price equal to the
fair value of the shares at the date of grant. Restricted shares are valued at
fair value of the shares at the date of grant and compensation expense is
recognized over the vesting period.
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees", and intends to
continue to do so.
F-6
<PAGE> 95
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets: Goodwill of companies acquired is being amortized on
the straight-line basis over 40 years. The carrying value of goodwill is
reviewed when indicators of impairment are present, by evaluating future cash
flows of the associated operations to determine if impairment exists. Goodwill
related to continuing operations at December 31, 1995 and 1994 was $63.1 million
and $61.2 million, respectively, net of respective accumulated amortization of
$14.6 million and $12.9 million. Patents are amortized over the shorter of their
legal or estimated useful lives.
Management Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Restatements: The Consolidated Financial Statements, and the notes
thereto, have been restated to reflect the Company's Roltra-Morse business
segment as a discontinued operation in accordance with Accounting Principles
Board Opinion No. 30. Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 2 DISCONTINUED OPERATIONS
Electro-Optical Systems
In January 1994, pursuant to a plan approved by the Board of Directors, the
Company announced its intention to dispose of its Electro-Optical Systems
operations. On January 3, 1995, the Company completed the sale of its Baird
Analytical Instruments Division to Thermo Instruments Systems Inc. for
approximately $12.3 million, which was used to repay a portion of the Company's
domestic senior debt. On June 2, 1995, the Company completed the sale of the
Optical Systems and Ni-Tec divisions of Varo Inc. and the Optical Systems
division of Baird Corporation, which represented the major part of its
Electro-Optical Systems business, to Litton Industries for approximately book
value. The proceeds were used to pay off $8 million outstanding under the
revolving credit facility on June 2, 1995 and to redeem $40 million of its
12.25% senior subordinated debentures on July 6, 1995. Remaining assets to be
sold include the Electro-Optical System's Varo Electronic Systems division and
non-operating real estate, which continue to be marketed to interested parties.
Turbomachinery
In August 1994 the Board of Directors approved a plan to sell the Company's
Turbomachinery operations. On January 17, 1995, the Company completed the sale
of its Delaval Turbine and TurboCare divisions and its 50% interest in
Delaval-Stork, to Mannesmann Demag. The final adjusted purchase price was $119
million of which, $109 million was received at closing, with the remainder
earning interest to the Company and to be received at specified future contract
dates subject to adjustment as provided in the agreement. It is management's
expectation that there will be no further adjustment to the purchase price. A
portion of the proceeds were used by the Company to pay off its domestic senior
debt in January 1995 and in March 1995 the Company redeemed $40 million of its
12.25% senior subordinated debentures with the remainder of the proceeds.
Roltra-Morse
In February 1996 the Company announced a plan to sell its Roltra-Morse
operations. The Company has engaged an investment banking firm to assist in the
sale which is expected to be completed in 1996 with proceeds in excess of net
book value of the operations.
F-7
<PAGE> 96
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with APB Opinion No. 30, the disposals of these business
segments have been accounted for as discontinued operations and, accordingly,
their operating results have been segregated and reported as Discontinued
Operations in the accompanying Consolidated Statements of Income. Prior year
financial statements have been reclassified to conform to the current year
presentation.
Discontinued operations include management's best estimates of amounts
expected to be realized at the time of disposal. The amounts the Company will
ultimately realize could differ materially in the near term from the amounts
used to determine the gain or loss on disposal of the discontinued operations.
Net assets and liabilities of the Discontinued Operations consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current Assets:
Receivables.................................................. $25,956 $ 88,793
Inventories.................................................. 21,484 70,194
Other current assets......................................... 6,351 4,986
------- --------
53,791 163,973
------- --------
Current Liabilities:
Notes Payable................................................ 9,849 3,072
Trade accounts payable....................................... 27,687 46,733
Other current liabilities.................................... 11,035 39,003
------- --------
48,571 88,808
------- --------
Net Current Assets............................................. $ 5,220 $ 75,165
------- --------
Long-term Assets:
Property..................................................... $22,112 $ 82,684
Intangible assets............................................ 12,645 12,589
Other long-term assets....................................... 11,666 9,308
------- --------
46,423 104,581
------- --------
Long-term Liabilities.......................................... 17,233 15,268
------- --------
Net Long-term Assets........................................... $29,190 $ 89,313
------- --------
Net Assets..................................................... $34,410 $164,478
======= ========
</TABLE>
Net assets related to the Electro-Optical Systems business are $11.9
million and $85 million as of December 31, 1995 and 1994, respectively; net
assets related to the Turbomachinery business are $1.0 million and $60 million
as of December 31, 1995 and 1994, respectively; and net assets related to the
Roltra-Morse business are $21.5 million and $19.5 million as of December 31,
1995 and 1994, respectively.
The Discontinued Operations have $19.4 million in foreign short-term credit
facilities with amounts outstanding at December 31, 1995 of $9.8 million. Total
long-term debt of discontinued operations amounted to $7.1 million and $9.6
million as of December 31, 1995 and 1994, respectively. Of these amounts, $1.6
million and $3.4 million represent the current portion.
F-8
<PAGE> 97
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A condensed summary of operations for the Discontinued Operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales.......................................... $159,339 $444,656 $396,731
Income (loss) from operations before income taxes
and minority interest............................ 653 10,882 (44,431)
-------- -------- ---------
Income taxes....................................... 878 1,443 1,550
Minority interest.................................. (725) 393 547
-------- -------- ---------
Income (loss) from operations...................... $ 500 $ 9,046 $(46,528)
======== ======== =========
</TABLE>
The income (loss) from operations of the Discontinued Operations for 1995,
1994 and 1993 includes allocated interest expense. Interest expense of $7.5
million, $19.4 million, and $19.6 million, respectively, was allocated based on
the ratio of the estimated net assets to be sold in relation to the sum of the
Company's shareholders' equity and the aggregate of outstanding debt at each
year end.
Electro-Optical Business
The Electro-Optical loss from operations was $45.3 million for 1993. Losses
from the Electro-Optical Systems operations for 1995 and 1994 resulted in a net
charge of $1.0 million and $6.2 million, respectively, to reserves established
as of December 31, 1993.
The Company recorded charges of $155.3 million at December 31, 1993, which
included a $104.6 million goodwill write-off to reduce the carrying amount of
the Electro-Optical discontinued operation to estimated realizable value. During
1995 the Company recognized an additional $13.3 million loss on disposal.
Included in the additional loss was $6.8 million related to the resolution of
contingencies associated with the sale of the business and fourth quarter
charges of $6.5 million primarily to write-down remaining non-operating real
estate to net realizable value. As of December 31, 1995, the Company has an
accrual for anticipated operating losses of $.6 million (including $.9 million
of allocated interest) through the date of sale, which is expected to occur
during the second half of 1996.
Turbomachinery Business
The Turbomachinery business income from operations was $5.6 million and
$1.0 million for 1994 and 1993, respectively.
As a result of the sale of the Turbomachinery business in 1995, the Company
recognized an estimated gain on disposal of $35.0 million, net of income taxes
of $5.2 million. The gain is net of fourth quarter charges of $4.6 million,
related to the resolution of contingencies associated with the sale to
Mannesmann Demag and to a write-down of remaining assets to net realizable
value.
Roltra-Morse
The Roltra-Morse business had income from operations of $.5 million and
$3.5 million for 1995 and 1994, respectively, and a loss from operations of $2.1
million in 1993.
NOTE 3 RESTRUCTURING
Asset Sales
In October 1992, the Company announced a plan to strengthen its balance
sheet through the sale of certain businesses and the application of the proceeds
to reduce debt. Pursuant to this plan, the Company
F-9
<PAGE> 98
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
divested its Heim Bearings, Aerospace, Barksdale Controls and CEC Instruments
businesses. In 1993, the Company sold its Heim Bearings, Aerospace and Barksdale
Controls operations for proceeds of approximately $91 million, and in 1994, sold
its CEC Instruments and Turboflex Ltd. operations, its Corporate headquarters
building and other previously identified assets for aggregate proceeds of $13.2
million. These proceeds, net of related expenses, were used to repay senior debt
in the amount of $81.9 million in 1993 and $13.2 million in 1994, in accordance
with the terms of the 1993 restructured credit facilities.
Other non-operating real estate, representing less than 10% of the original
value of assets announced to be sold in October 1992, remain for sale. Results
for the fourth quarter of 1995 include an unusual charge of $5.0 million related
to the write-down of this non-operating real estate to its net realizable value
(See Note 6). The Company targets completion of the divestitures over the next 9
to 12 months.
In the fourth quarter of 1993, management initiated a strategy to
reposition the Company on its less capital intensive businesses that exhibited
strong brand name recognition, a broad customer base and market leadership with
less dependence on U.S. Government sales. In connection with this strategy, the
Company divested its Turbomachinery and most of its Electro-Optical Systems
businesses in 1995. This repositioning will be completed upon the sales of the
Roltra-Morse business, and the remaining portion of the Electro-Optical Systems
business, which are expected to be completed in 1996 (See Note 2).
Cost Reduction Programs
In the fourth quarter of 1995, the Company recorded a charge to continuing
operations of $4.0 million, including severance and other expenses related to a
Company-wide program to reduce general and administrative costs (See Note 6).
This program includes a reduction of 65 employees, or 2% of the total number of
Company employees, including a reduction of the corporate headquarters staff by
20%. This program is expected to reduce general and administrative expenses by
approximately $2.9 million in 1996, $4.0 million in 1997 and $5.0 million
annually thereafter. The required cash outlay related to this program was $.4
million in 1995, and the expected cash requirements during 1996 are $3.2
million. The remainder represents non-cash charges.
In 1993, the Company recorded a charge to continuing operations of $5.2
million for a cost reduction program which benefited 1994 and 1995 operating
results (See Note 6). The Company implemented cost-cutting measures at its core
operations to reduce its expense structure and to eliminate duplicative
functions. In addition, in connection with this 1993 cost reduction program, the
Company consolidated certain operations in its European Instruments and Morse
Controls businesses and revised operating processes and reduced employment
levels at its Pumps segment and other operations. The number of Company
employees in core operations declined by 205, or 7%, between mid-1993 and
mid-1994. These organizational restructuring measures have been providing net
cash benefits, compared to 1993 levels, which approximated $4.5 million and $1.5
million for continuing operations, in 1995 and 1994, respectively, and are
expected to approximate $5.5 million annually thereafter, based largely on
reduced employment costs.
F-10
<PAGE> 99
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Finished products................................................ $39,684 $33,350
Work in process.................................................. 31,235 30,049
Materials and supplies........................................... 26,372 27,022
------- -------
97,291 90,421
Less customers' progress payments................................ 689 1,635
Less valuation allowance......................................... 11,572 11,884
------- -------
$85,030 $76,902
======= =======
</TABLE>
NOTE 5 ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accrued contract completion costs................................ $ 94 $ 556
Accrued product warranty costs................................... 2,737 4,310
Accrued litigation and claims costs.............................. 1,674 4,493
Payroll and related items........................................ 14,328 12,547
Accrued interest payable......................................... 6,511 10,167
Accrued restructuring costs...................................... 1,688 960
Accrued divestiture costs........................................ 2,861 8,582
Other............................................................ 8,176 10,005
------- -------
$38,069 $51,620
======= =======
</TABLE>
NOTE 6 UNUSUAL ITEMS
During the fourth quarter of 1995, the Company recognized unusual charges
of $9.0 million ($.53 per share) in income from continuing operations. These
charges include $4.0 million in severance benefits and other expenses related to
a Company-wide program to reduce general and administrative costs (See Note 3)
and $5.0 million related to the write-down of certain non-operating real estate
to net realizable value (See Note 3).
During the twelve months ended December 31, 1993, the Company recognized
unusual charges of $14.3 million ($.85 per share) in loss from continuing
operations. During the fourth quarter of 1993, the Company recognized charges of
$20.3 million that include provisions of $5.2 million related to the
restructuring and consolidation of certain of the Company's operating units (See
Note 3), $10.1 million expected net loss overall related to the Company's asset
divestiture program (See Note 3) and $5.0 million in debt related financing fees
associated with obtaining consents from holders of its 12.25% senior
subordinated debentures to amend the indenture governing these debentures and
obtain waivers from its senior lenders for non-compliance with certain financial
covenants as of December 31, 1993, as a result of the fourth quarter net loss.
These charges are net of unusual income of $6.0 million recorded in the third
quarter of 1993 as a result of a change in estimate related to legal costs
associated with pending litigation.
F-11
<PAGE> 100
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 INCOME TAXES
The components of income tax expense (benefit) from continuing operations
are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ -- $ --
Foreign............................................ 1,906 1,330 --
State.............................................. 303 460 --
------ ----- ------
2,209 1,790 --
------ ----- ------
Deferred:
Federal............................................ (17,000) -- 13,000
Foreign and State.................................. -- -- 450
------ ----- ------
(17,000) -- 13,450
------ ----- ------
$(14,791) $ 1,790 $13,450
====== ===== ======
</TABLE>
Income tax expense from discontinued operations, in thousands, is as
follows: 1995 -- $878; 1994 -- $1,443; and 1993 -- $1,550.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1995 1994
------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred tax assets:
Postretirement benefit obligation............ $ 765 $ 8,940 $ 765 $ 11,593
Expenses not currently deductible............ 19,101 9,895 19,174 25,879
Net operating loss carryover................. -- 30,041 -- 24,673
Tax credit carryover......................... -- 5,033 -- 8,653
----- ------ ------ ------
Total deferred tax assets...................... 19,866 53,909 19,939 70,798
Valuation allowance for deferred tax assets.... (8,495) (23,180) (15,140) (53,770)
----- ------ ------ ------
Net deferred tax assets........................ 11,371 30,729 4,799 17,028
----- ------ ------ ------
Deferred tax liabilities:
Tax over book depreciation................... -- 18,593 -- 18,838
Difference between book and tax basis of
income recognition........................ -- -- 471 1,230
Other........................................ -- 7,527 -- 4,324
----- ------ ------ ------
Total deferred tax liabilities................. -- 26,120 471 24,392
----- ------ ------ ------
Net deferred tax assets (liabilities).......... $11,371 $ 4,609 $ 4,328 $ (7,364)
===== ====== ====== ======
</TABLE>
At December 31, 1995, unremitted earnings of foreign subsidiaries were
approximately $23.4 million. Since it is the Company's intention to indefinitely
reinvest these earnings, no U.S. taxes have been provided.
F-12
<PAGE> 101
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Determination of the amount of unrecognized deferred tax liability on these
unremitted earnings is not practicable. The amount of foreign withholding taxes
that would be payable upon remittance of those earnings is approximately $.9
million.
The components of income (loss) from continuing operations before income
taxes and extraordinary item:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States......................................... $(5,584) $ (322) $(21,086)
Foreign............................................... 2,822 2,296 (3,393)
-------- ------ ---------
$(2,762) $1,974 $(24,479)
======== ====== =========
</TABLE>
U.S. income tax expense (benefit) at the statutory tax rate is reconciled
below to the overall U.S. and foreign income tax expense (benefit).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. federal income tax rate.................. $ (967) $ 691 $(8,567)
State taxes, net of federal income tax effect........ 197 299 396
Impact of foreign tax rates and credits.............. 918 526 --
Net U.S. tax on distributions of current foreign
earnings........................................... 586 935 --
Goodwill amortization................................ 643 656 694
Other/valuation reserve.............................. (16,168) (1,317) 20,927
--------
-
--------- --------
Income tax expense (benefit)......................... $(14,791) $(1,790) $13,450
========= ======== =========
</TABLE>
Net income taxes paid during 1995 and 1994 were $6.3 million and $.2
million, respectively, and net income tax refunds received during 1993 were $7
million.
The Company has net operating loss carryforwards of approximately $85
million expiring in years 2002 through 2010, foreign tax credit carryforwards of
approximately $8.3 million expiring through 2000, which, for financial reporting
purposes, are reflected as deductible foreign taxes, and minimum tax credits of
approximately $2.1 million which may be carried forward indefinitely. These
carryforwards are available to offset future federal taxable income.
In 1995, the Company reduced the valuation allowance applied against the
net operating loss carryforward by $17 million to a level where management
believes it is more likely than not that the tax benefit will be realized. The
total amount of future taxable income in the U.S. necessary to realize the asset
is approximately $48 million. The Company would generate this income from the
execution of reasonable and prudent tax planning strategies and based upon
future income projections, including the Company's announced plan to sell
Roltra-Morse SpA in 1996. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
NOTE 8 NOTES PAYABLE AND LONG-TERM DEBT
In August 1994, the Company obtained credit facilities for borrowings up to
$150 million from a group of lenders (the "Existing Credit Agreement"), secured
by the assets of the Company's domestic operations and all or a portion of the
stock of certain of the Company's subsidiaries. The Existing Credit Agreement
provided for a $65 million revolving credit facility through July 31, 1997, a
$40 million term loan amortizing to July 1997, and a $45 million bridge loan
maturing January 1996. The revolving credit facility is extendible to July
F-13
<PAGE> 102
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 under certain conditions. Proceeds from the Existing Credit Agreement were
used to repay the Company's working capital loans under the former domestic
senior credit facilities, as well as other outstanding senior debt obligations.
(See Note 15).
In January 1995, proceeds from the sales of the Baird Analytical
Instruments division and the Turbomachinery business were used to repay amounts
outstanding on the term and bridge loans of $36.7 million and $45 million,
respectively (See Note 2). At the same time, and in keeping with the terms of
the Existing Credit Agreement, the $65 million revolving credit facility was
reduced to $50.0 million. In December 1995, the Existing Credit Agreement was
amended to increase the revolving credit facility to $60 million. At December
31, 1995 the Company had borrowings of $18.2 million outstanding under the
revolving credit facility in addition to $7.8 million of outstanding standby
letters of credit. The Company's continuing operations currently have $16.1
million in foreign short-term credit facilities with amounts outstanding at
December 31, 1995 of $9.0 million. Due to the short-term nature of these debt
instruments it is the Company's opinion that the carrying amounts approximate
the fair value. The weighted average interest rate on short-term notes payable
was 8.0% and 8.5% at December 31, 1995 and 1994, respectively.
Long-term debt of continuing operations consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Borrowings on revolving credit facility expiring July 31,
1997(1)...................................................... $ 18,200 $ --
Bridge loan due January 31, 1996............................... -- 45,000
Term loan, $3.3 million due quarterly October 31, 1994 to
July 31, 1997................................................ -- 36,667
Senior subordinated debentures with interest at 12.25%,
due August 15, 1997.......................................... 70,000 150,000
Senior subordinated debentures with interest at 12%,
due November 1, 1999 to 2001................................. 150,000 150,000
Other.......................................................... 8,407 4,373
-------- --------
246,607 386,040
Less current portion........................................... 805 13,675
-------- --------
$245,802 $372,365
======== ========
</TABLE>
- ---------------
(1) These loans bear interest at a rate equal to LIBOR plus 2.25%.
The aggregate annual maturities of long-term debt from continuing
operations, in thousands, for the four years subsequent to 1996 are:
1997 -- $90,460; 1998 -- $935; 1999 -- $37,672; and 2000 -- $37,662.
Total debt of the discontinued operations, in thousands, amounted to
$16,983 and $12,723 as of December 31, 1995 and 1994, respectively. Of these
amounts, $5,514 and $6,238 represent the long-term portion.
The 12.25% senior subordinated debentures are redeemable in whole or in
part, at the option of the Company at any time, at 100% of their principal
amount, plus accrued interest. Interest is payable semi-annually on February 15
and August 15. The fair value of these instruments at December 31, 1995, based
on market bid prices, was $70.4 million. In March 1995, $40 million of the
12.25% senior subordinated debentures were redeemed from the proceeds received
from the sale of the Turbomachinery business in January 1995 and on July 6, 1995
an additional $40 million were redeemed with proceeds from the sale of the
Company's Electro-Optical Systems businesses (See Note 2).
F-14
<PAGE> 103
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 12% senior subordinated debentures are currently redeemable in whole or
in part, at the option of the Company, at 102.5% of their principal amount, plus
accrued interest. The redemption price declines to 100% on or after November 1,
1996. Interest is payable semi-annually on May 1 and November 1. The fair value
of these instruments at December 31, 1995, based on market bid prices, was
$153.0 million.
The Existing Credit Agreement requires the Company to meet certain
objectives with respect to financial ratios and it and the 12.25% and 12% senior
subordinated debentures contain provisions which place certain limitations on
dividend payments and outside borrowings. Under the most restrictive of such
provisions, the Company must maintain certain minimum consolidated net worth
levels, interest coverage and fixed charge coverage levels and the Company is
prohibited from declaring or paying cash dividends through at least July 31,
1997. The senior subordinated debentures contain covenants that, among other
things, restrict indebtedness to specified levels. Under certain circumstances,
such covenants could result in the Company's inability to fully utilize the
revolving credit facility under the Existing Credit Agreement and the foreign
short-term credit facilities. At December 31, 1995, the Company was in technical
violation of one of the covenants under the Existing Credit Agreement which was
subsequently amended. The Company received a waiver of this technical violation.
In connection with the early repayment and redemption of domestic senior
debt and $80 million of the 12.25% senior subordinated debentures, as discussed
in the preceding paragraphs, a $4.4 million ($.26 per share) charge was recorded
as an extraordinary item in 1995. The charge consisted of the write-off of
deferred debt expense associated with portions of the domestic senior debt
repaid and the 12.25% senior subordinated debentures redeemed.
Bank, advisory and legal fees associated with the 1994 refinancing of the
Existing Credit Agreement amounted to approximately $5.6 million in 1994. In
addition, a $5.3 million ($.31 per share) charge related to the extinguishment
of senior debt under the former domestic senior credit facilities was recorded
as an extraordinary charge in 1994. The $5.3 million charge is comprised of a
$3.7 million premium paid in 1994 on the prepayment of its $30 million 12.75%
senior promissory note and the write-off of approximately $1.6 million of
previously deferred loan costs.
Bank, advisory and legal fees associated with the 1993 restructuring of the
Company's domestic senior credit facilities amounted to approximately $8.0
million payable in 1993. In addition, 200,000 warrants for the Company's common
stock, valued at approximately $.4 million, were issued to one senior lender
and, as part of the $125 million repayment plan, the Company has recognized a
charge in 1993 of approximately $12 million on the prepayment of its senior
notes which was partially financed with Make-Whole Notes issued to one of its
senior lenders and the write-off of approximately $2 million of previously
deferred loan costs. Approximately $18.1 million ($1.07 per share) of the above
amounts relate to the extinguishment of senior debt and were recorded as an
extraordinary item in 1993.
NOTE 9 SHAREHOLDERS' EQUITY
Equity Incentive Plan
Under the Company's Equity Incentive plan, up to 3,050,000 shares of the
Company's $1.00 par value common stock can be issued pursuant to the granting of
stock options, stock appreciation rights, restricted stock awards and restricted
unit awards to key employees. Options can be granted at no less than 100 percent
of the fair market value of the stock on the date of grant or on the prospective
date fixed by the Board of Directors. None of these options can be exercised for
at least a one-year period from the date of grant. After this waiting period, 25
percent of each option, on a cumulative basis, can be exercised in each of the
following four years. Additionally, each option shall terminate no later than 10
years from the date of grant.
On August 17, 1993, the Board of Directors approved the repricing of
certain outstanding non-qualified stock options granted on previous dates under
the Plan. This resulted in the replacement of 468,000 non-
F-15
<PAGE> 104
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
qualified stock options at various exercise prices ranging from $10.375 to
$20.375, by 272,865 non-qualified stock options at an exercise price of $7.375,
the fair market value at the date of the replacement grant, subject to the
market price of the Company's stock exceeding $10 per share for a period of 30
days. During 1994, the aforementioned criteria was met. Vested dates are based
on the original grant dates of the replaced options.
On June 20, 1994, certain additional outstanding non-qualified stock
options, granted on previous dates under the Plan, were repriced pursuant to the
August 17, 1993 Board of Directors approval. This resulted in the replacement of
15,000 non-qualified stock options at various exercise prices ranging from
$11.625 to $20.375, by 9,970 non-qualified stock options at an exercise price of
$10.25, the fair market value at the date of the replacement grant. Vested dates
are based on the original grant dates of the replaced options.
On June 23, 1995, the Company's Equity Incentive Plan was amended to
increase the total issuable shares by 850,000 to 3,050,000 and to prohibit
repricing without prior shareholder approval.
The Plan permits awards of restricted stock to key employees subject to a
restricted period and a purchase price, if any, to be paid by the employee as
determined by the Committee of the Equity Incentive Plan. Grants of 40,000
shares and 30,000 shares of restricted stock were made in 1994 and 1993,
respectively, all of which were outstanding as of December 31, 1995. Vesting of
such awards is subject to a defined vesting period and to the Company's stock
achieving certain performance levels during such period.
Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Options:
Granted................................................ 250 410 498
Exercised.............................................. (73) (56) --
Canceled............................................... (210) (159) (150)
Repricing..............................................
Canceled............................................ -- (15) (468)
Issued.............................................. -- 10 273
Outstanding at end of year............................... 1,464 1,497 1,307
Exercisable at end of year............................... 691 654 652
Available for grant at end of year....................... 865 55 341
Option price range per share:
Granted................................................ $ 6.00 $ 9.75- $7.375
$10.25
Exercised.............................................. $ 7.00- $ 7.00- --
$7.375 $7.375
</TABLE>
During 1988, the Company adopted the Equity Incentive Plan for Outside
Directors. The plan provides for the granting of non-qualified stock options of
up to 360,000 shares of the Company's common stock to directors of the Company
who are not employees of the Company or any of its affiliates. Pursuant to this
plan, options can be granted at no less than 100 percent of the fair market
value of the stock on a date five business days after the option is granted and
no option granted may be exercised during the first year after its grant. After
this waiting period, 25 percent of each option, on a cumulative basis, can be
exercised in each of the following four years. In February 1988, 320,000 stock
options were granted at $16.19 per share, all of which were exercisable as of
December 31, 1995. In December 1990, 40,000 stock options were granted at
$10.375 per share, all of which were exercisable as of December 31, 1995. In
June 1995, the Plan was amended to reduce the number of shares issuable to an
aggregate of 360,000.
F-16
<PAGE> 105
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1995, the Company adopted the 1995 Equity Incentive Plan for
Outside Directors. The Plan provides for the granting of restricted stock awards
and non-qualified stock options of up to 240,000 shares of the Company's common
stock to outside directors of the Company who are not employees of the Company
or any of its affiliates. Pursuant to this Plan, each outside director will be
granted, on an annual basis, options to purchase 4,000 shares of the Company's
common stock. The exercise price of the options will be 100 percent of the fair
market value of the common stock at the date of grant and no option granted may
be exercised during the first year after its grant subject to certain plan
provisions. After this waiting period, the options become exercisable in four
equal annual installments of 1,000 shares. Additionally, each option terminates
no later than 10 years from the date of grant. The plan also provides for the
granting of an annual restricted stock award of 1,000 shares of the Company's
common stock. Each award is made in four quarterly installments of 250 shares
beginning July 1, 1995. The shares comprising the restricted stock awards may
not be sold or otherwise transferred by the outside director until termination
from service. During 1995, 24,000 stock options were granted at $8.00 per share,
none of which were excercisable as of December 31, 1995, and 3,000 shares of
restricted stock awards were issued.
Preferred Stock Purchase Rights
On April 22, 1987, the Board of Directors declared a distribution of one
Preferred Stock Purchase Right for each share of common stock outstanding. Each
right will entitle the holder to buy from the Company a unit consisting of 1/100
of a share of Junior Participating Preferred Stock, Series A, at an exercise
price of $70 per unit. The rights become exercisable ten days after public
announcement that a person or group has acquired 20 percent or more of the
Company's common stock or has commenced a tender offer for 30 percent or more of
common stock. The rights may be redeemed prior to becoming exercisable by action
of the Board of Directors at a redemption price of $0.025 per right. If more
than 35 percent of the Company's common stock becomes held by a beneficial
owner, other than pursuant to an offer deemed in the best interest of the
shareholders by the Company's independent directors, each right may be exercised
for common stock, or other property, of the Company having a value of twice the
exercise price of each right. If the Company is acquired by any person after the
rights become exercisable, each right will entitle its holder to receive common
stock of the acquiring company having a market value of twice the exercise price
of each right. The rights expire on May 4, 1997.
Employee Stock Savings Plan
Up to 600,000 shares of the Company's common stock are reserved for
issuance under the Company's Employee Stock Savings Plan. (See Note 11)
Common Stock Warrants
In July 1993, the Company issued warrants to purchase 200,000 shares of its
common stock at $9.02 per share (subject to adjustment in certain events), to
one of its senior lenders in connection with the restructuring of its senior
credit facilities. The warrants are exercisable on or before December 31, 1998.
NOTE 10 OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company classifies its continuing operations into four core business
segments: Power Transmission, Pumps, Instrumentation and Morse Controls.
Detailed information regarding products by segment is contained in the
Prospectus under the section entitled "Business." A fifth business segment
entitled Other is included in continuing operations for financial reporting
purposes, and includes operations previously sold and operations to be sold as
part of the Company's asset divestiture program. The 1994 and 1993 amounts have
been restated to reflect Roltra-Morse as a discontinued operation and the
redefinition of the Company's
F-17
<PAGE> 106
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
business segments. Information about the business of the Company by business
segment, foreign operations and geographic area is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales
Power Transmission................................... $ 95,075 $ 93,308 $ 85,906
Pumps................................................ 94,375 90,428 91,556
Instrumentation...................................... 76,113 72,226 72,434
Morse Controls....................................... 107,664 100,075 90,876
Other................................................ -- 4,748 75,754
-------- -------- --------
Total net sales.............................. $373,227 $360,785 $416,526
-------- -------- --------
Segment operating income
Power Transmission................................... $ 11,348 $ 8,905 $ 2,338
Pumps................................................ 9,884 10,447 10,357
Instrumentation...................................... 6,746 9,791 7,951
Morse Controls....................................... 5,292 5,743 457
Other................................................ -- (216) 886
-------- -------- --------
Total segment operating income............... 33,270 34,670 21,989
-------- -------- --------
Equity in income (loss) of unconsolidated companies.... 302 -- (231)
Unallocated corporate expenses......................... (12,454) (5,120) (13,407)
Net interest expense................................... (23,880) (27,576) (32,830)
-------- -------- --------
Income (loss) from continuing operations before income
taxes and extraordinary item......................... $ (2,762) $ 1,974 $(24,479)
======== ======== ========
</TABLE>
A reconciliation of segment operating income to income from operations
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Segment operating income............................... $ 33,270 $ 34,670 $ 21,989
Unallocated corporate expenses....................... (12,454) (5,120) (13,407)
Other income......................................... (739) (219) (1,074)
-------- -------- --------
Income from operations................................. $ 20,077 $ 29,331 $ 7,508
======== ======== ========
</TABLE>
Segment operating income for the year ended December 31, 1995, includes
$2.4 million of unusual charges, of which $.9 million and $1.5 million relate to
the Instrumentation and Morse Controls segments, respectively. Unallocated
corporate expenses include unusual charges of $6.6 million for the year ended
December 31, 1995.
Segment operating income for the year ended December 31, 1993, includes
$8.1 million of unusual charges, of which $.2 million, $.5 million, $.9 million,
$2.4 million and $4.1 million relates to the Power Transmission, Pumps,
Instrumentation, Morse Controls, and Other segments, respectively. Unallocated
corporate expenses include unusual charges of $6.2 million for the year ended
December 31, 1993.
The Pumps and Instrumentation segments had sales to the United States
Department of Defense, in the form of prime and subcontracts, which accounted
for 14% of consolidated sales in 1993. No one customer accounted for 10% or more
of consolidated sales in 1995 and 1994.
F-18
<PAGE> 107
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets
Power Transmission........................................... $ 86,343 $ 88,284 $ 89,301
Pumps........................................................ 69,347 63,172 60,430
Instrumentation.............................................. 42,538 44,862 47,017
Morse Controls............................................... 111,482 107,471 101,986
Other........................................................ 13,321 18,054 40,413
Corporate.................................................... 26,446 26,298 55,915
Discontinued Operations:
Electro-Optical........................................... 11,893 85,000 85,000
Turbomachinery............................................ 983 59,970 56,711
Roltra-Morse.............................................. 21,534 19,508 14,765
-------- -------- --------
Total identifiable assets............................ $383,887 $512,619 $551,538
-------- -------- --------
Depreciation and amortization
Power Transmission........................................... $ 4,618 $ 4,778 $ 4,053
Pumps........................................................ 3,972 3,578 3,878
Instrumentation.............................................. 1,840 1,464 1,518
Morse Controls............................................... 3,392 4,155 3,518
Other........................................................ -- 655 3,313
Corporate.................................................... 1,400 3,973 3,516
-------- -------- --------
Total depreciation and amortization.................. $ 15,222 $ 18,603 $ 19,796
-------- -------- --------
Capital expenditures
Power Transmission........................................... $ 3,384 $ 1,245 $ 1,317
Pumps........................................................ 7,367 2,164 1,694
Instrumentation.............................................. 1,445 1,177 1,054
Morse Controls............................................... 2,131 1,080 886
Other........................................................ -- 39 1,042
Corporate.................................................... 273 320 350
-------- -------- --------
Total capital expenditures........................... $ 14,600 $ 6,025 $ 6,343
======== ======== ========
</TABLE>
F-19
<PAGE> 108
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The continuing operations of the Company on a geographic basis are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales
United States.................................... $244,341 $246,601 $307,918
Foreign (principally Europe)..................... 128,886 114,184 108,608
-------- -------- --------
Total net sales.......................... $373,227 $360,785 $416,526
-------- -------- --------
Segment operating income
United States.................................... $ 29,642 $ 31,679 $ 26,046
Foreign.......................................... 3,628 2,991 (4,057)
-------- -------- --------
Total segment operating income........... $ 33,270 $ 34,670 $ 21,989
-------- -------- --------
Identifiable assets
Continuing Operations:
United States................................. $234,382 $238,916 $283,614
Foreign....................................... 115,095 109,225 111,448
Discontinued Operations:
United States................................. 12,876 141,053 135,585
Foreign....................................... 21,534 23,425 20,891
-------- -------- --------
Total identifiable assets................ $383,887 $512,619 $551,538
======== ======== ========
Export sales
Asia............................................. $ 4,060 $ 2,763 $ 4,362
Latin America.................................... 2,747 2,368 1,699
Canada........................................... 4,643 3,748 3,132
Mexico........................................... 472 861 701
Europe........................................... 2,704 2,857 2,750
Other............................................ 2,568 3,293 2,596
-------- -------- --------
Total export sales....................... $ 17,194 $ 15,890 $ 15,240
======== ======== ========
</TABLE>
NOTE 11 PENSION PLANS
The Company and its subsidiaries have various pension plans covering
substantially all of their employees. Benefits are based on either years of
service or years of service and average compensation during the years
immediately preceding retirement. It is the general policy of the Company to
fund its pension plans in conformity with requirements of applicable laws and
regulations.
Pension expense was $4.2 million in 1995, $7.9 million in 1994 and $8.4
million in 1993, and includes amortization of prior service cost and transition
amounts for periods of 5 to 15 years. The 1995 expense includes costs related to
retained pension liabilities of discontinued operations. In 1994 and 1993 these
amounts were charged to discontinued operations. In 1993 the Company's
divestiture program resulted in a decrease in U.S. pension plan participants.
The total curtailment and settlement gain, in 1993, of $1.2 million was applied
to the reserve for divestitures (See Note 3). The Company included $2.0 million
of curtailment and settlement losses in its gain on disposal related to the
discontinued operations in 1995. Net pension
F-20
<PAGE> 109
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense (including $5.7 million and $4.5 million charged to discontinued
operations in 1994 and 1993, respectively) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................... $ 4,297 $ 7,237 $ 7,678
Interest cost on projected benefit obligation.......... 13,429 14,158 13,802
Actual return on plan assets........................... (17,797) (449) (22,646)
Net amortization and deferral.......................... 4,274 (12,963) 9,567
--------- --------- ---------
Net pension expense.................................... $ 4,203 $ 7,983 $ 8,401
========= ========= =========
</TABLE>
Assumptions used in the accounting for the Company-sponsored defined
benefit plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate................................ 7.5% 8.5% 7.5%
Rate of increase in compensation levels....................... 5.3% 5.3% 5.3%
Expected long-term rate of return on assets................... 9.0% 9.0% 9.0%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet for the defined benefit pension plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................ $ 117,455 $ 46,445
-------- ---------
Accumulated benefit obligation........................... $ 124,808 $ 46,564
-------- ---------
Projected benefit obligation............................... $ 138,866 $ 47,454
Plan assets at fair value.................................. 148,275 35,226
-------- ---------
Plan assets in excess of (less than) projected benefit
obligation............................................... 9,409 (12,228)
Unrecognized net (gain) or loss............................ (9,566) 107
Prior service cost not yet recognized in net periodic
pension cost............................................. 2,812 956
Unrecognized net (asset) obligation at transition.......... 2,037 171
Adjustment required to recognize minimum liability......... -- (3,132)
-------- ---------
Pension asset (liability) recognized in the balance
sheet.................................................... $ 4,692 $ (14,126)
======== =========
</TABLE>
F-21
<PAGE> 110
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................................ $ 101,869 $ 60,492
-------- ---------
Accumulated benefit obligation................................... $ 105,020 $ 61,253
-------- ---------
Projected benefit obligation....................................... $ 119,886 $ 62,661
Plan assets at fair value.......................................... 127,850 47,542
-------- ---------
Plan assets in excess of (less than) projected benefit
obligation....................................................... 7,964 (15,119)
Unrecognized net (gain) or loss.................................... (5,897) (175)
Prior service cost not yet recognized in net periodic pension
cost............................................................. 4,066 3,348
Unrecognized net (asset) obligation at transition.................. 3,407 821
Adjustment required to recognize minimum liability................. -- (4,165)
-------- ---------
Pension asset (liability) recognized in the balance sheet.......... $ 9,540 $ (15,290)
======== =========
</TABLE>
Plan assets at December 31, 1995, are invested in fixed dollar guaranteed
investment contracts, United States Government obligations, fixed income
investments, guaranteed annuity contracts and equity securities whose values are
subject to fluctuations of the securities market.
The Company maintains two defined contribution (Employee Stock Savings)
plans covering substantially all domestic, non-union employees. Eligible
employees may generally contribute from 1% to 12% of their compensation on a
pre-tax basis. Company contributions to the plans are based on a percentage of
employee contributions. In July 1995 the Company restored its matching
contribution, previously suspended in July 1992, at 25% of the first 6% of each
participant's pre-tax contribution. The Company's expense for 1995 was $.3
million.
NOTE 12 POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially all
of the Company's non-union employees retiring from active service and
immediately receiving retirement benefits from one of the Company's pension
plans would be eligible to receive such benefits. The Company's unionized
retiree benefits are determined by their individually negotiated contracts. The
Company's contribution toward the full cost of the benefits is based on the
retiree's age and continuous unbroken length of service with the Company. The
Company's policy is to pay the cost of medical benefits as claims are incurred.
Life insurance costs are paid as insured premiums are due.
In March 1994, the Company amended its policy regarding retiree medical and
life insurance. This amendment, which affects some current retirees and all
future retirees, phases out the Company subsidy for retiree medical and life
insurance over a three year period ending January 1, 1997. The pre-tax amount
amortized to income from continuing operations was $4.6 million and $4.4 million
in 1995 and 1994, respectively. The Company will amortize remaining associated
reserves of approximately $5 million to income in 1996. The amendment has not
resulted in a significant increase or decrease in cash requirements during the
phase-out period.
F-22
<PAGE> 111
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the plans' combined status reconciled with
the amounts included in the consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $11,780 $ 4,974 $16,754
Fully eligible active plan participants................. 1,277 312 1,589
Other active plan participants.......................... 1,011 81 1,092
------- -------- -------
14,068 5,367 19,435
Plan assets............................................... -- -- --
Unrecognized prior service cost........................... 3,109 3,924 7,033
Unrecognized net gain (loss).............................. 2,379 (2,290) 89
------- -------- -------
Postretirement benefit liability recognized in the balance
sheet................................................... $19,556 $ 7,001 $26,557
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $16,709 $ 4,826 $21,535
Fully eligible active plan participants................. 1,365 262 1,627
Other active plan participants.......................... 1,326 68 1,394
-------- -------- -------
19,400 5,156 24,556
Plan assets............................................... -- -- --
Unrecognized prior service cost........................... 7,840 7,376 15,216
Unrecognized net loss..................................... (2,423) (2,043) (4,466)
-------- -------- -------
Postretirement benefit liability recognized in
the balance sheet....................................... $24,817 $10,489 $35,306
======== ======== =======
</TABLE>
The 1995 accrued postretirement benefits amount is classified as follows:
$2.2 million current liabilities and $24.4 million long-term liabilities. For
1994, these amounts are $2.2 million current liabilities, $30.9 million
long-term liabilities and $2.2 million in net assets of discontinued
operations -- noncurrent.
As a result of the divestitures in 1994 and 1993, the Company recognized a
$0.3 million gain and a $2.2 million gain, respectively, related to the
curtailment of its postretirement benefit plans. These curtailment gains were
applied to the reserve for divestitures (See Note 3).
As a result of the Company's decision to sell its Electro-Optical Systems
operations a curtailment gain of $1.3 million was recognized in 1993. This
curtailment gain is a component of the loss on disposal of discontinued
operations (See Note 2).
F-23
<PAGE> 112
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost (including $2.3 million credited
in 1994 and $1.0 million charged in 1993 to discontinued operations) included
the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 59 $ 5 $ 64
Interest cost............................................. 1,057 415 1,472
Amortization of prior service cost........................ (3,110) (2,319) (5,429)
Amortization of gain (loss)............................... (166) 102 (64)
-------- -------- --------
Net periodic postretirement benefit cost.................. $(2,160) $(1,797) $(3,957)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 100 $ 7 $ 107
Interest cost............................................. 1,547 289 1,836
Amortization of prior service cost........................ (5,955) (1,967) (7,922)
Amortization of loss...................................... 543 103 646
-------- -------- --------
Net periodic postretirement benefit cost.................. $(3,765) $(1,568) $(5,333)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------
LIFE
MEDICAL INSURANCE
PLANS PLANS TOTAL
------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 372 $ 63 $ 435
Interest cost............................................... 2,999 750 3,749
Amortization of prior service cost.......................... -- -- --
Amortization of loss........................................ -- -- --
------ ---- ------
Net periodic postretirement benefit cost.................... $3,371 $ 813 $4,184
====== ==== ======
</TABLE>
Actual negotiated health care premiums were used in calculating 1995, 1994
and 1993 health care costs. It is expected that the annual increase in medical
costs will be 8.0% from 1995 to 1996, grading down in future years by 1.0% per
year until it reaches a future general medical inflation level of 5%. Inflation
has been capped at 200% for active non-union employees. The health care cost
trend rate assumption has a significant effect on the amounts reported. For
example, a 1% increase in the health care trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1995 by $1.1
million and the net periodic cost by $.1 million for the year. Effective January
1, 1995, the Company changed its medical inflation rate to reflect actual
experience. Such change resulted in a reduction of the 1995 net periodic cost of
$.8 million. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and 8.5% in 1995 and
1994, respectively.
F-24
<PAGE> 113
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 LEASES
The Company leases certain manufacturing and office facilities, equipment,
and automobiles under long-term leases. Future minimum rental payments required
under operating leases of continuing operations that have initial or remaining
noncancelable lease terms in excess of one year, as of December 31, 1995, are:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1996...................................... $ 5,355
1997...................................... 4,362
1998...................................... 3,799
1999...................................... 2,649
2000...................................... 1,268
Thereafter................................ 4,854
----------------------
Total minimum lease payments.............. $ 22,287
======================
</TABLE>
Total rental expense under operating leases charged against continuing
operations was $7.3 million in 1995, $8.2 million in 1994 and $8.0 million in
1993.
NOTE 14 CONTINGENCIES
Legal Proceedings
LILCO Litigation. In August 1985, the Company was named as defendant in a
lawsuit filed by Long Island Lighting Company ("LILCO") following the severing
of a crankshaft in a diesel generator sold to LILCO by the Company. LILCO's
complaint contained 11 counts, including counts for breach of warranty,
negligence and fraud, and sought $250 million in damages. In various decisions
from 1986 through 1990, 10 of the original 11 counts and various additional
amended counts were dismissed with only the original breach of warranty count
remaining. In September 1993, the Second Circuit Court of Appeals affirmed a
previous trial court decision entering a judgment against the Company in the
amount of $18.3 million, and in October 1993, the judgment was satisfied by
payment to LILCO of approximately $19.3 million by two of the Company's
insurers.
In January 1993, the Company was served with a complaint in a case brought
in the U.S. District Court for the Northern District of California by one of its
insurers, International Insurance Company ("International"), alleging that,
because, among other things, its policies did not cover the matters in question
in the LILCO case, it was entitled to recover $10 million in defense costs
previously paid in connection with such case and $1.2 million of the judgment
which was paid on behalf of the Company. In June 1995, the Court entered a
judgment in favor of International awarding it $11.2 million, plus interest from
March 1995 (the "International Judgment"). The International Judgment, however,
was not supported by an order, and in July of 1995, the court vacated the
International Judgment as being premature because certain outstanding issues of
recoverability of the $10 million in defense costs had not been finally
determined. The Company is awaiting a final decision. If the International
Judgment is reinstated, the Company intends to appeal. If the ultimate outcome
of this matter is unfavorable, the Company will record a charge for the judgment
amount plus accrued interest.
In June 1992, the Company filed an action, subsequently transferred to the
U.S. District Court, Southern District of New York, that is currently pending
against Granite State Insurance Co. ("Granite State"), one of its insurers, in
an attempt to collect amounts for defense costs paid to counsel retained by the
Company in defense of the LILCO litigation. After reimbursing the Company for
$1.7 million in defense costs, Granite State refused to reimburse the Company
for an additional $8.5 million in defense costs paid by the Company, alleging
that defense costs above reasonable levels were expended in defending the LILCO
litigation. The insurer subsequently paid $18.1 million of the judgment rendered
against the Company, thereby exhausting its
F-25
<PAGE> 114
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$20 million policy. The Company claims that the insurer's refusal to pay defense
costs was in bad faith and the Company is entitled to its cost of money and
other damages. In a counterclaim, Granite State is seeking reimbursement of all
or part of the $1.7 million in defense costs previously paid by it, and has
indicated that it may seek additional damages beyond the reimbursement of
defense costs, including recoupment of approximately $4.0 million of the amount
awarded by the jury in the LILCO litigation (which represents amounts previously
paid by LILCO to the Company for generator repairs and which Granite State had
paid on behalf of the Company).
Additional Litigation. The Company and one of its subsidiaries are two of
a large number of defendants in a number of lawsuits brought by approximately
17,500 claimants who allege injury caused by exposure to asbestos. Although
neither the Company nor any of its subsidiaries has ever been a producer or
direct supplier of asbestos, it is alleged that the industrial and marine
products sold by the Company and the subsidiary named in such complaints
contained components which contained asbestos. Suits against the Company and its
subsidiary have been tendered to their insurers who are defending under their
stated reservation of rights. Should settlements for these claims be reached at
levels comparable to those reached by the Company in the past, they would not be
expected to have a material effect on the Company.
The activities of certain employees of the Ni-Tec Division of the Company's
Varo Inc. subsidiary ("Ni-Tec"), headquartered in Garland, Texas, are the focus
of an ongoing investigation by the Office of the Inspector General of the U.S.
Department of Defense and the Department of Justice (Criminal Division). Ni-Tec
received subpoenas for certain records as a part of the investigation in 1992,
1993 and 1994, each of which was responded to. The investigation appears
directed at quality control, testing and documentation activities which began at
Ni-Tec while it was a division of Optic-Electronic Corp. Optic-Electronic Corp.
was acquired by the Company in November 1990 and subsequently merged with Varo
Inc. in 1991. The Company continues to cooperate fully with the investigation
and is pursuing settlement discussions with the U.S. government. Should
settlement be reached consistent with current discussions, it would not be
expected to have a material effect on the Company.
The operations of the Company, like those of other companies engaged in
similar businesses, involve the use, disposal and clean-up of substances
regulated under environmental protection laws. In a number of instances the
Company has been identified as a Potentially Responsible Party by the U.S.
Environmental Protection Agency, and in one instance by the State of Washington,
with respect to the disposal of hazardous wastes at a number of facilities that
have been targeted for clean-up pursuant to CERCLA or similar State law.
Although CERCLA and corresponding State law liability is joint and several, the
Company believes that its liability will not have a material adverse effect on
the financial condition of the Company since it believes that it either
qualifies as a de minimis or minor contributor at each site. Accordingly, the
Company believes that the portion of remediation costs that it will be
responsible for will not be material.
The Company also has a lawsuit pending against it in the U.S. District
Court for the Western District of Pennsylvania alleging component failures in
equipment sold by its former diesel engine division and claiming damages of
approximately $3.0 million and a lawsuit in the Circuit Court of Cook County,
Illinois, alleging performance shortfalls in products delivered by the Company's
former Delaval Turbine Division and claiming damages of approximately $8.0
million. Each lawsuit is in the document discovery stage.
With respect to the litigation and claims described in the preceding
paragraphs, management of the Company believes that it either expects to
prevail, has adequate insurance coverage or has established appropriate reserves
to cover potential liabilities. There can be no assurance, however, on the
ultimate outcome of any of these matters.
The Company is also involved in various other pending legal proceedings
arising out of the ordinary course of the Company's business. The adverse
outcome of any of these legal proceedings is not expected to have a material
adverse effect on the financial condition of the Company. However, if all or
substantially all of
F-26
<PAGE> 115
IMO INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these legal proceedings were to be determined adversely to the Company, there
could be a material adverse effect on the financial condition of the Company.
Reported profits from the sale of certain products to the U.S. Government
and its agencies are subject to adjustments. In the opinion of management,
refunds, if any, will not have a material effect upon the consolidated financial
statements.
The Company is self-insured for a portion of its product liability and
certain other liability exposures. Depending on the nature of the liability
claim, and with certain exceptions, the Company's maximum self-insured exposure
ranges from $250,000 to $500,000 per claim with certain maximum aggregate policy
limits per claim year. With respect to the exceptions, which relate principally
to diesel and turbine units sold before 1991, the Company's maximum self-insured
exposure is $5 million per claim.
NOTE 15 SUBSEQUENT EVENT
On April 29, 1996, the Company completed the refinancing of its senior
domestic debt, its 12% senior subordinated debentures and its remaining 12.25%
senior subordinated debentures.
Under the terms of the refinancing, the Company has issued $155 million of
11.75% senior subordinated notes due in 2006, priced at a discount to yield 12%.
The Company also has entered into a new agreement for $175 million in senior
secured credit facilities with a group of lenders. Initial borrowings under the
senior secured credit facilities were approximately $112 million. The cost of
issuance of the new senior subordinated notes and the new credit facility will
be amortized over their respective terms.
Proceeds of the new senior subordinated notes and a portion of the new
credit facility were used to redeem the remaining $70 million of the Company's
12.25% senior subordinated debentures due 1997 and all $150 million of its 12%
senior subordinated debentures due 2001, together with accrued interest and a
prepayment premium for the latter issue. Proceeds were also used to refinance
all obligations under the previous credit faciltiy.
As a result of the refinancing, an extraordinary charge of approximately
$8.5 million will be recorded in the second quarter of 1996. This charge
represents the costs incurred in connection with the early extinguishment of the
debt as well as the write-off of previously deferred loan costs.
F-27
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
Board of Directors,
Imo Industries Inc.
We have audited the accompanying consolidated balance sheets of Imo
Industries Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Imo Industries
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Princeton, New Jersey
February 15, 1996,
except for Note 15,
as to which the date is April 29, 1996
F-28
<PAGE> 117
IMO INDUSTRIES INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Quarterly financial information for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995(A)
-------------------------------------------
1ST* 2ND* 3RD* 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net Sales................................... $95,884 $98,576 $88,727 $90,040
Gross profit................................ 30,894 30,943 27,389 25,666
Income (loss) before extraordinary item:
Continuing Operations..................... 2,586 2,962 2,515 3,966
Discontinued Operations................... 40,577 448 (6,938) (11,962)
Extraordinary Item........................ (4,140) -- (304) --
Net income (loss)........................... 39,023 3,410 (4,727) (7,996)
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations.................. .15 .18 .15 .23
Discontinued Operations................ 2.38 .02 (.41) (.70)
Extraordinary Item........................ (.24) -- (.02) --
Net income (loss)......................... 2.29 .20 (.28) (.47)
Cash dividends per share(b)................. -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
1994(A)
-------------------------------------------
1ST* 2ND* 3RD* 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net Sales................................... $87,800 $91,478 $91,235 $90,272
Gross profit................................ 27,759 28,296 27,278 28,617
Income (loss) before extraordinary item:
Continuing Operations..................... 341 (1,045) 1,208 (320)
Discontinued Operations................... 564 2,797 1,580 4,105
Extraordinary Item........................ -- -- (5,299) --
Net income (loss)........................... 905 1,752 (2,511) 3,785
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations.................. .02 (.06) .07 (.02)
Discontinued Operations................ .03 .17 .09 .24
Extraordinary Item........................ -- -- (.31) --
Net income (loss)......................... .05 .11 (.15) .22
Cash dividends per share(b)................. -- -- -- --
</TABLE>
- ---------------
(a) The notes to the consolidated financial statements, appearing elsewhere in
this Prospectus, should be read in conjunction with this summary.
(b) See Note 8 for information regarding restrictions on dividend payments.
* Reclassified to conform to 1995 full year presentation.
F-29
<PAGE> 118
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
Stock Market Closing Prices
1st Quarter............................... 11 1/2 6 1/4 10 1/8 7
2nd Quarter............................... 9 1/8 6 1/2 10 7/8 9 1/2
3rd Quarter............................... 9 7/8 8 1/4 12 9 3/8
4th Quarter............................... 9 5 3/4 12 1/4 8 3/4
</TABLE>
- ---------------
There were 22,942 shareholders of record on December 31, 1995.
F-30
<PAGE> 119
ANNEX A
GLOSSARY OF PRODUCT DESCRIPTIONS
I. POWER TRANSMISSION
Enclosed worm gear reducer -- a speed reducer used in conjunction with an
electric motor, directly or indirectly, to reduce motor speed and generate
torque, for use in a variety of industrial and non-industrial applications.
These reducers are provided with varying output speeds, responding to specific
customer requirements.
Enclosed helical gear reducer -- a speed reducer that uses highly efficient
gears that run in-line on parallel shafts in conjunction with an electric motor,
directly or indirectly, to reduce motor speed and generate torque. The
efficiency and high torque generation of these reducers makes them attractive
for an increased number of industrial applications and customers.
Open gears -- gears available in a wide range of configurations and types
that operate on intersecting or parallel shafts and are used to transmit both
speed and torque. These gears are available in a variety of product materials,
ranging from steel and cast iron to plastic. They are offered to both industrial
and non-industrial customers in conjunction with a broad array of available
sizes. The range of products includes worm, worm gear, spur, helical, miter and
bevel gears.
Variable speed control -- a speed drive used in conjunction with an AC or
DC electric motor to alter the speed or affect the positioning of a rotating
shaft. These speed drives allow for an unlimited number of performance
possibilities for production line or process flow applications. The product is
sold for both industrial and non-industrial applications and can be manufactured
to accommodate horsepower requests from fractional to one thousand horsepower.
II. PUMPS
Rotary Screw Pump -- a pump that uses two or more intermeshing screws to
transport a liquid through the pump as the screws mesh and rotate.
Three-screw Pump -- a rotary screw pump with only three moving
parts -- a power rotor that drives two idler rotors. As the screws rotate,
the threads seal against each other and the casing, creating an enclosed
chamber that propels the fluid through the pump at a constant speed. The
screws are ground to very close tolerances and are lubricated by the fluid
being pumped. The simplicity of the design makes it efficient, reliable and
extremely quiet.
Two-screw Pump -- a rotary screw pump that employs a pair of
intermeshing screws on two shafts contained in a single housing. The
two-screw pump differs from the three-screw pump in two principal ways: (1)
external timing gears in the two-screw pump drive and synchronize the
screws and therefore do not depend on one screw driving the other; and (2)
the two-screw pump does not depend on the fluid being pumped for its
lubrication, and therefore can pump a number of low-lubricity fluids like
pulp, paper, adhesives and molasses.
Centrifugal Pump -- a rotary screw pump that employs an impeller with fixed
blades inside a casing. When the impeller spins, momentum is applied to the
liquid being pumped, propelling fluid from the inlet side of the pump to the
outlet side by centrifugal force.
Gear Pump -- a device that uses gears to pump fluid. The internal gear type
produced by Imo uses a pumping action produced by a pair of star-shaped gears.
As the gears rotate, the sequence of expanding and contracting gear pockets
draws the liquid from the inlet side to the outlet side of the pump and forces
it out under pressure. Internal gear pumps are quiet and capable of handling a
variety of high-pressure hydraulic applications, such as machines tools,
injection molding equipment and hydraulic presses.
A-1
<PAGE> 120
III. INSTRUMENTATION
Level Switch -- a device that senses a liquid level and sends an electrical
signal to a switch. The Company produces these switches in hundreds of different
sizes, shapes and configurations, employing technologies ranging from simple
floats to fiber optics.
Flow Switch -- a device that employs pistons, paddles or shuttles contained
within a housing to monitor the flow of liquids or gases. The Company produces
both pre-set and adjustable flow switches, capable of measuring flow rates
ranging from 50 cubic centimeters per minute to 100 gallons per minute.
Pressure Transducer -- a device that converts one form of energy to another
form of energy. There are many types of transducers. A pressure transducer
consists of a thin metal disc (called a diaphragm) to which a sensor (called a
strain gage) is attached. Pressure causes the diaphragm to deflect, and the
sensor measures the level of deflection and transmits that information
electrically to a pressure gauge or monitor. The transducer thereby converts
mechanical energy (the deflection of the diaphragm) to the electrical energy
required to transmit data to a monitor. Transducers are used to monitor pressure
in many different industrial products and processes.
Liquid Level Indicator -- a device that employs a magnet-equipped float
that moves up and down along a stem inside a storage vessel as the liquid level
rises and falls. The level is read from a calibrated indicator outside the tank.
The Company's patented SureSite(R) indicators use brilliantly colored flags that
are flipped by magnets as the liquid rises and falls, offering an indication of
liquid level that can be seen from some distance.
Cryogenic Valves -- fittings used in the transport, distribution and
control of super-cooled gases, such as oxygen, nitrogen, neon, argon and helium.
These valves are used in nuclear fusion research, in the space industry for
rocket fueling and testing, and in the gas industry for the production of
liquefied gases.
IV. MORSE CONTROLS
Push-Pull Cable Systems -- systems that use wire cables which slide back
and forth within a conduit. On construction equipment like road graders,
bulldozers and backhoes, cable controls actuate the hydraulic valves that make
the blades and buckets move. Such systems are also used to control
transmissions, steering, braking and other motion control features of dump
trucks, firetrucks and school buses. Industrial uses include stationary
generators and material handling systems, including drycleaning conveyors.
Remote Control Systems -- systems that use mechanical, hydraulic or
electronic means of transfering motion from a remote input device to an output
device. Motion control can be linear-to-rotary (a steering wheel) or
linear-to-linear (an accelerator pedal). A simple remote control system on a
pleasure boat might consist of a control lever attached by a cable to the engine
throttle. Pushing the control lever forward engages the throttle and makes the
boat travel faster.
Mechanical Controls -- see Push-Pull Cable Systems above.
Electronic Controls -- systems that employ electronic input devices to
direct the output device and to specify the sequence of output device
operations. Many leisure marine boat producers favor electronic control systems
because of their smoother and more accurate effect.
Hydraulic Controls -- systems that employ an oil-actuated pump to provide
the power to control motion. Power steering on an automobile is an example of a
hydraulic control system. The Company makes hydraulic steering control systems
for commercial boats, including fishing boats and tug boats.
A-2
<PAGE> 121
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Incorporation of Certain Documents By
Reference........................... i
Prospectus Summary.................... 1
Risk Factors.......................... 10
Capitalization........................ 15
Selected Historical Consolidated
Financial Data...................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 28
Management............................ 39
Security Ownership of Certain
Beneficial Owners and Management.... 42
The Exchange Offer.................... 45
Description of the Notes.............. 51
Description of New Credit Agreement... 78
Certain U.S. Federal Income Tax
Consequences........................ 79
Plan of Distribution.................. 83
Notice to Canadian Residents.......... 83
Legal Matters......................... 84
Experts............................... 84
Index to Consolidated Financial
Statements.......................... F-1
Glossary of Product Descriptions...... A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO]
Imo Industries Inc.
$155,000,000
11 3/4% Senior Subordinated
Notes Due 2006
PROSPECTUS
- ------------------------------------------------------
<PAGE> 122
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Imo Industries Inc. is a Delaware corporation. Subsection (b)(7) of Section
102 of the Delaware General Corporation Law (the "DGCL"), enables a corporation
in its original certificate of incorporation or an amendment thereto to
eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article IX of Imo's Restated Certificate of Incorporation has
eliminated the personal liability of directors to the fullest extent permitted
by Subsection (b)(7) of Section 102 of the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding provided that such
director or officer acted in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation, and, with respect
to any criminal action or proceeding, provided further that such director or
officer had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such director or officer shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
of the circumstances of the case, such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided for, by, or granted
pursuant to, Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of any person who is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Article XIII of the Company's By-Laws states that the corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit or
II-1
<PAGE> 123
proceeding, by reason of the fact that he is or was a director, officer or
employee of the corporation, or is or was serving at the request of the
corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to the best interests of, the corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- The Company's Restated Certificate of Incorporation, as amended March 10, 1989
and November 10, 1992 (incorporated by reference to the Company's Form 10-K
for the year ended December 31, 1992 (the "1992 10-K")).
3.2 -- The Company's Bylaws (incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1994 (the "1994 10-K")).
*4.1 -- Indenture, dated as of April 15, 1996, between the Company and IBJ Schroder
Bank & Trust Company, as trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*4.3 -- Registration Rights Agreement, dated as of April 23, 1996, between the Company
and the Initial Purchasers.
**5 -- Opinion of Weil, Gotshal & Manges LLP re: legality.
**8 -- Opinion of Weil, Gotshal & Manges LLP re: tax matters.
10.1 -- Amended and Restated Equity Incentive Plan for Key Employees (incorporated by
reference to the Company's Form S-8 (Registration No. 33-60533) as filed with
the SEC on June 23, 1995).
10.2 -- Amended and Restated 1988 Equity Incentive Plan for Outside Directors
(incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1995).
10.3 -- 1995 Equity Incentive Plan for Outside Directors (incorporated by reference to
the Company's Form S-8 (Registration No. 33-60535)).
10.4 -- The Company's Supplemental Retirement Income Plan (incorporated by reference
to the Company's Form 10-K for the year ended December 31, 1995 (the "1995
10-K")).
10.5 -- Change in Control Agreement dated January 9, 1987 between the Company and John
J. Carr (incorporated by reference to the 1992 10-K).
10.6 -- Change in Control Agreement dated December 23, 1988 between the Company and
Brian Lewis (incorporated by reference to the 1992 10-K).
10.7 -- Change in Control Agreement dated August 5, 1992 between the Company and
William M. Brown (incorporated by reference to the 1992 10-K).
10.8 -- Change in Control Agreement dated August 13, 1992 between the Company and
Thomas J. Bird (incorporated by reference to the 1992 10-K).
10.9 -- Employment Agreement dated September 13, 1993 between the Company and Donald
K. Farrar (incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1993 (the "1993 10-K")); Amendment dated November 17, 1994
to the Employment Agreement between the Company and Donald K. Farrar
(incorporated by reference to the 1994 10-K).
10.10 -- Change in Control Agreement dated September 13, 1993 between the Company and
Donald K. Farrar (incorporated by reference to the 1993 10-K).
10.11 -- Change in Control Agreement dated October 2, 1995 between the Company and
David C. Christensen (incorporated by reference to the 1995 10-K).
</TABLE>
- ---------------
<TABLE>
<C> <C> <S>
* Filed herewith.
** To be filed by Amendment.
</TABLE>
II-2
<PAGE> 124
<TABLE>
<C> <C> <S>
10.12 -- The Company's Salaried Employees Stock Savings Plan as amended on July 1, 1987
and as amended on June 14, 1988 (incorporated by reference to the Company's
Form 11-K filed with the SEC on April 13, 1988 and the Company's Form 10-K for
the year ended December 31, 1989); Amendment dated March 16, 1989 to the Imo
Industries Inc. Employees Stock Savings Plan (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1991 (the "1991 10-K"));
Amendments dated September 6, 1990 and February 14, 1991 to the Imo Industries
Inc. Employees Stock Savings Plan (incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1990 (the "1990 10-K")); Amendment
dated May 9, 1991 to the Imo Industries Inc. Employees Stock Savings Plan
(incorporated by reference to the Company's Form S-8 filed with the SEC on
June 17, 1991)); Amendments dated December 30, 1991 and August 3, 1992 to the
Imo Industries Inc. Employees Stock Savings Plan (incorporated by reference to
the 1992 10-K); Trust Agreement for the Imo Industries Inc. Employees Stock
Savings Plan as of March 1, 1995 between the Company and Eagle Trust Company
(incorporated by reference to the 1994 10-K).
10.13 -- Distribution Agreement dated December 18, 1986 between Transamerica
Corporation and the Company (incorporated by reference to the Company's Form 8
Amendment No. 2 filed with the SEC on December 9, 1986 amending the Company's
Form 10 with the SEC on October 15, 1986 (the "Form 8")).
10.14 -- Tax Agreement between the Company and Transamerica Corporation (incorporated
by reference to the Form 8).
10.15 -- Warrant dated July 15, 1993 issued by the Company to The Prudential Insurance
Company of America (incorporated by reference to the Company's Form 10-K/A
filed with the SEC on August 6, 1993 amending the 1992 10-K).
10.16 -- Stock Purchase Agreement dated November 30, 1987 between the Company and
TRIFIN B.V. (incorporated by reference to the Company's Form 8-K filed with
the SEC on February 17, 1987).
10.17 -- Agreement and Plan of Merger, dated as of August 21, 1988, by and among the
Company, VI Acquisition Corp. and Varo Inc. (incorporated by reference to the
Company's Form 8-K filed with the SEC on October 14, 1988 (the "1988 8-K")).
10.18 -- Stock Option Agreement, dated as of August 21, 1988, between VI Acquisition
Corp. and Varo Inc. (incorporated by reference to the 1988 8-K).
10.19 -- Agreement for the purchase of the stock of Warren Pumps, Inc. by the Company
dated April 3, 1989 among the Company, Warren Pumps, Inc. and the holders of
all of the issued and outstanding stock of Warren Pumps, Inc. (incorporated by
reference to the 1991 10-K).
10.20 -- Stock Purchase Agreement dated as of May 31, 1990 among United Scientific
Holdings PLC, United Scientific Inc. and the Company (incorporated by
reference to the 1990 10-K).
10.21 -- Stock Purchase Agreement dated as of October 28, 1993 among the Company, Imo
Industries GmbH, Mark Controls Corporation and Mark Controls GmbH i. Gr., as
amended (incorporated by reference to the 1993 10-K).
10.22 -- German Asset Purchase Agreement among Imo Industries GmbH, Mark Controls GmbH
i. Gr., the Company and Mark Controls Corporation, as amended (incorporated by
reference to the 1993 10-K).
*10.23 -- Credit Agreement dated as of April 29, 1996 among the Company, as Borrower,
Varo Inc., as Guarantor, Warren Pumps, Inc., as Guarantor, the institutions
from time to time party thereto as Lenders and Issuing Banks, and Citicorp
USA, Inc., as Agent.
10.24 -- Asset Purchase Agreement dated as of November 4, 1994 by and among the
Company, Imo Industries International Inc. and Mannesmann Capital Corporation
(incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1994); Agreement, Amendment and Waiver dated January 17, 1995 by
and among the Company and Mannesmann Capital Corporation (incorporated by
reference to the 1994 10-K).
10.25 -- Asset and Stock Purchase Agreement dated as of January 1, 1995 by and among
the Company and Thermo Jarrell Ash Corporation (incorporated by reference to
the 1994
10-K).
</TABLE>
II-3
<PAGE> 125
<TABLE>
<C> <C> <S>
10.26 -- Purchase and Sale Agreement among Litton Industries, Inc., and Litton Systems,
Inc. and Imo Industries Inc., Baird Corporation, Optic-Electronic
International, Inc. and Varo Inc. dated May 11, 1995 and amended and restated
as of June 2, 1995 (incorporated by reference to the Company's Form 8-K filed
with the SEC on June 19, 1995).
*12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of the Company (incorporated by reference to the 1995 10-K).
*23.1 -- Consent of Ernst & Young LLP.
**23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibits 5 and 8).
*24 -- Power of Attorney (included on signature pages to Registration Statement).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as trustee under the Indenture.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
**99.3 -- Form of Exchange Agent Agreement, dated , 1996, between IBJ Schroder Bank
& Trust Company and the Company.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
(b) Schedule
Consolidated Financial Statement Schedule:
<TABLE>
<S> <C>
Report of Independent Auditors............................................. S-1
Schedule II -- Valuation and Qualifying Accounts........................... S-2
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, IMO INDUSTRIES
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LAWRENCEVILLE, STATE
OF NEW JERSEY ON MAY 10, 1996.
IMO INDUSTRIES INC.
By: /s/ DONALD K. FARRAR
---------------------------
DONALD K. FARRAR
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW
HEREBY CONSTITUTES THOMAS J. BIRD AND ROBERT A. DERR II, AND EACH OF THEM
SINGLY, SUCH PERSON'S TRUE AND LAWFUL ATTORNEYS, EACH WITH FULL POWER OF
SUBSTITUTION TO SIGN FOR SUCH PERSON AND IN SUCH PERSON'S NAME AND CAPACITY
INDICATED BELOW, ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, AND TO
FILE THE SAME WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND
CONFIRMING SUCH PERSON'S SIGNATURE AS IT MAY BE SIGNED BY SAID ATTORNEYS TO ANY
AND ALL AMENDMENTS.
<TABLE>
<C> <S> <C>
/s/ DONALD K. FARRAR Chief Executive Officer, May 10, 1996
- --------------------------------------- President and Director
DONALD K. FARRAR (principal executive
officer)
/s/ WILLIAM M. BROWN Executive Vice President, May 10, 1996
- --------------------------------------- Chief Financial
WILLIAM M. BROWN Officer/Corporate Controller
(principal financial and
accounting officer)
/s/ JAMES B. EDWARDS Director May 10, 1996
- ---------------------------------------
JAMES B. EDWARDS
/s/ J. SPENCER GOULD Director May 10, 1996
- ---------------------------------------
J. SPENCER GOULD
/s/ RICHARD J. GROSH Director May 10, 1996
- ---------------------------------------
RICHARD J. GROSH
/s/ CARTER P. THACHER Director May 10, 1996
- ---------------------------------------
CARTER P. THACHER
/s/ DONALD C. TRAUSCHT Director May 10, 1996
- ---------------------------------------
DONALD C. TRAUSCHT
/s/ ARTHUR E. VAN LEUVEN Director May 10, 1996
- ---------------------------------------
ARTHUR E. VAN LEUVEN
</TABLE>
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REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Imo Industries
Inc. as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated
February 15, 1996 (except for Note 15, as to which the date is April 29, 1996)
included elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed in Item 21(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Princeton, New Jersey
February 15, 1996
S-1
<PAGE> 128
SCHEDULE II
IMO INDUSTRIES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS OTHER - DEDUCTIONS AT END
OF YEAR EXPENSES DESCRIBE - DESCRIBE OF YEAR
------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $ 2,192 $ 394 $ 74 (2) $ 642 (4) $ 2,030
12 (9)
======= ======= ======= ======= =======
Inventory Valuation Allowance $11,884 $ 2,454 $ 312 (2) $ 2,918 (7) $11,572
30 (9) 190 (3)
======= ======= ======= ======= =======
Valuation allowance for deferred $15,550 (3)
17,000 (10)
tax assets $68,910 --- 4,685 (11) $31,675
======= ======= ======= ======= =======
Accrued product warranty liability $ 4,310 $ 1,563 $ 9 (9) $ 1,341 (5) $ 2,737
45 (2) 2,253 (3)
404 (3)
======= ======= ======= ======= =======
Accrued contract completion costs $ 556 $ 91 $ --- $ 183 (6) $ 94
370 (3)
======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1994: *
Allowance for doubtful accounts $ 2,371 $ 742 $ 123 (2) $ 839 (4) $ 2,192
205 (3)
======= ======= ======= ======= =======
Inventory Valuation Allowance $11,577 $ 5,452 --- $ 4,381 (7) $11,884
764 (3)
======= ======= ======= ======= =======
Valuation allowance for deferred $60,215 $ --- $ 8,695 (3) $ --- $68,910
tax assets
======= ======= ======= ======= =======
Accrued product warranty liability $ 3,777 $ 1,188 $ 17 (2) $ 672 (5) $ 4,310
======= ======= ======= ======= =======
Accrued contract completion costs $ 886 $ 324 $ --- $ 179 (3) $ 556
475 (6)
======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1993: *
Allowance for doubtful accounts $ 2,338 $ 1,374 $ --- $ 327 (8) $ 2,371
914 (4)
37 (2)
63 (3)
======= ======= ======= ======= =======
Inventory Valuation Allowance $14,033 $ 3,435 $ --- $ 2,591 (7) $11,577
1,870 (3)
1,430 (8)
======= ======= ======= ======= =======
Valuation allowance for deferred $ 1,500 $15,000 $43,715 (1) $ --- $60,215
tax assets
======= ======= ======= ======= =======
Accrued product warranty liability $ 5,272 $ 1,191 $ 30 (2) $ 2,719 (5) $ 3,777
63 (3) 60 (3)
======= ======= ======= ======= =======
Accrued contract completion costs $ 701 $ 627 $ 60 (3) $ 502 (6) $ 886
======= ======= ======= ======= =======
</TABLE>
* Reclassified to conform to the 1995 presentation (continuing operations).
(1) Net change in allowance primarily to offset tax benefit of current year tax
loss.
(2) Foreign exchange adjustments.
(3) Reclassification and adjustments.
(4) Uncollectible accounts written off, net of recoveries.
(5) Product warranty claims honored during the year.
(6) Current year charges for contract completion.
(7) Charges against inventory valuation account during the year.
(8) Ending balances of businesses sold.
(9) Opening balance of companies acquired during the year.
(10) Reduction due to revaluation of realizable tax benefit.
(11) Utilization of net operating loss carryforwards by discontinued operations.
S-2
<PAGE> 129
EXHIBIT INDEX
- ------------
(a) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- The Company's Restated Certificate of Incorporation, as amended March 10, 1989
and November 10, 1992 (incorporated by reference to the Company's Form 10-K
for the year ended December 31, 1992 (the "1992 10-K")).
3.2 -- The Company's Bylaws (incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1994 (the "1994 10-K")).
*4.1 -- Indenture, dated as of April 15, 1996, between the Company and IBJ Schroder
Bank & Trust Company, as trustee.
*4.2 -- Form of Notes (included in Exhibit 4.1).
*4.3 -- Registration Rights Agreement, dated as of April 23, 1996, between the Company and
the Initial Purchasers.
**5 -- Opinion of Weil, Gotshal & Manges LLP re: legality.
**8 -- Opinion of Weil, Gotshal & Manges LLP re: tax matters.
10.1 -- Amended and Restated Equity Incentive Plan for Key Employees (incorporated by
reference to the Company's Form S-8 (Registration No. 33-60533) as filed with
the SEC on June 23, 1995).
10.2 -- Amended and Restated 1988 Equity Incentive Plan for Outside Directors
(incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1995).
10.3 -- 1995 Equity Incentive Plan for Outside Directors (incorporated by reference to
the Company's Form S-8 (Registration No. 33-60535)).
10.4 -- The Company's Supplemental Retirement Income Plan (incorporated by reference
to the Company's Form 10-K for the year ended December 31, 1995 (the "1995
10-K")).
10.5 -- Change in Control Agreement dated January 9, 1987 between the Company and John
J. Carr (incorporated by reference to the 1992 10-K).
10.6 -- Change in Control Agreement dated December 23, 1988 between the Company and
Brian Lewis (incorporated by reference to the 1992 10-K).
10.7 -- Change in Control Agreement dated August 5, 1992 between the Company and
William M. Brown (incorporated by reference to the 1992 10-K).
10.8 -- Change in Control Agreement dated August 13, 1992 between the Company and
Thomas J. Bird (incorporated by reference to the 1992 10-K).
10.9 -- Employment Agreement dated September 13, 1993 between the Company and Donald
K. Farrar (incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1993 (the "1993 10-K")); Amendment dated November 17, 1994
to the Employment Agreement between the Company and Donald K. Farrar
(incorporated by reference to the 1994 10-K).
10.10 -- Change in Control Agreement dated September 13, 1993 between the Company and
Donald K. Farrar (incorporated by reference to the 1993 10-K).
10.11 -- Change in Control Agreement dated October 2, 1995 between the Company and
David C. Christensen (incorporated by reference to the 1995 10-K).
10.12 -- The Company's Salaried Employees Stock Savings Plan as amended on July 1, 1987
and as amended on June 14, 1988 (incorporated by reference to the Company's
Form 11-K filed with the SEC on April 13, 1988 and the Company's Form 10-K for
the year ended December 31, 1989); Amendment dated March 16, 1989 to the Imo
Industries Inc. Employees Stock Savings Plan (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1991 (the "1991 10-K"));
Amendments dated September 6, 1990 and February 14, 1991 to the Imo Industries
Inc. Employees Stock Savings Plan (incorporated by reference to the Company's
Form 10-K for the year ended December 31, 1990 (the "1990 10-K")); Amendment
dated May 9, 1991 to the Imo Industries Inc. Employees Stock Savings Plan
(incorporated by reference to the Company's Form S-8 filed with the SEC on
June 17, 1991)); Amendments dated December 30, 1991 and August 3, 1992 to the
Imo Industries Inc. Employees Stock Savings Plan (incorporated by reference to
the 1992 10-K); Trust Agreement for the Imo Industries Inc. Employees Stock
Savings Plan as of March 1, 1995 between the Company and Eagle Trust Company
(incorporated by reference to the 1994 10-K).
10.13 -- Distribution Agreement dated December 18, 1986 between Transamerica
Corporation and the Company (incorporated by reference to the Company's Form 8
Amendment No. 2 filed with the SEC on December 9, 1986 amending the Company's
Form 10 with the SEC on October 15, 1986 (the "Form 8")).
10.14 -- Tax Agreement between the Company and Transamerica Corporation (incorporated
by reference to the Form 8).
10.15 -- Warrant dated July 15, 1993 issued by the Company to The Prudential Insurance
Company of America (incorporated by reference to the Company's Form 10-K/A
filed with the SEC on August 6, 1993 amending the 1992 10-K).
10.16 -- Stock Purchase Agreement dated November 30, 1987 between the Company and
TRIFIN B.V. (incorporated by reference to the Company's Form 8-K filed with
the SEC on February 17, 1987).
10.17 -- Agreement and Plan of Merger, dated as of August 21, 1988, by and among the
Company, VI Acquisition Corp. and Varo Inc. (incorporated by reference to the
Company's Form 8-K filed with the SEC on October 14, 1988 (the "1988 8-K")).
10.18 -- Stock Option Agreement, dated as of August 21, 1988, between VI Acquisition
Corp. and Varo Inc. (incorporated by reference to the 1988 8-K).
10.19 -- Agreement for the purchase of the stock of Warren Pumps, Inc. by the Company
dated April 3, 1989 among the Company, Warren Pumps, Inc. and the holders of
all of the issued and outstanding stock of Warren Pumps, Inc. (incorporated by
reference to the 1991 10-K).
10.20 -- Stock Purchase Agreement dated as of May 31, 1990 among United Scientific
Holdings PLC, United Scientific Inc. and the Company (incorporated by
reference to the 1990 10-K).
10.21 -- Stock Purchase Agreement dated as of October 28, 1993 among the Company, Imo
Industries GmbH, Mark Controls Corporation and Mark Controls GmbH i. Gr., as
amended (incorporated by reference to the 1993 10-K).
10.22 -- German Asset Purchase Agreement among Imo Industries GmbH, Mark Controls GmbH
i. Gr., the Company and Mark Controls Corporation, as amended (incorporated by
reference to the 1993 10-K).
*10.23 -- Credit Agreement dated as of April 29, 1996 among the Company, as Borrower,
Varo Inc., as Guarantor, Warren Pumps, Inc., as Guarantor, the institutions
from time to time party thereto as Lenders and Issuing Banks, and Citicorp
USA, Inc., as Agent.
10.24 -- Asset Purchase Agreement dated as of November 4, 1994 by and among the
Company, Imo Industries International Inc. and Mannesmann Capital Corporation
(incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1994); Agreement, Amendment and Waiver dated January 17, 1995 by
and among the Company and Mannesmann Capital Corporation (incorporated by
reference to the 1994 10-K).
10.25 -- Asset and Stock Purchase Agreement dated as of January 1, 1995 by and among
the Company and Thermo Jarrell Ash Corporation (incorporated by reference to
the 1994
10-K).
10.26 -- Purchase and Sale Agreement among Litton Industries, Inc., and Litton Systems,
Inc. and Imo Industries Inc., Baird Corporation, Optic-Electronic
International, Inc. and Varo Inc. dated May 11, 1995 and amended and restated
as of June 2, 1995 (incorporated by reference to the Company's Form 8-K filed
with the SEC on June 19, 1995).
*12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of the Company (incorporated by reference to the 1995 10-K).
*23.1 -- Consent of Ernst & Young LLP.
**23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibits 5 and 8).
*24 -- Power of Attorney (included on signature pages to Registration Statement).
*25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as trustee under the Indenture.
**99.1 -- Form of Letter of Transmittal.
**99.2 -- Form of Notice of Guaranteed Delivery.
**99.3 -- Form of Exchange Agent Agreement, dated , 1996, between IBJ Schroder Bank
& Trust Company and the Company.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
<PAGE> 1
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMO INDUSTRIES INC.,
Issuer
11 3/4% Senior Subordinated Notes Due 2006
INDENTURE
Dated as of April 15, 1996
IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1) ................ 7.10
(a)(2) .............. 7.10
(a)(3) .............. N.A.
(a)(4) .............. N.A.
(b) ................. 7.08; 7.10
(c) ................. N.A.
311(a) ................... 7.11
(b) ................. 7.11
(c) ................. N.A.
312(a) ................... 2.05
(b) ................. 11.03
(c) ................. 11.03
313(a) ................... 7.06
(b)(1) .............. N.A.
(b)(2) .............. 7.06
(c) ................. 11.02
(d) ................. 7.06
314(a) ................... 4.02;
4.14; 11.02
(b) ................. N.A.
(c)(1) .............. 11.04
(c)(2) .............. 11.04
(c)(3) .............. N.A.
(d) ................. N.A.
(e) ................. 11.05
(f) ................. 4.14
315(a) ................... 7.01
(b) ................. 7.05; 11.02
(c) ................. 7.01
(d) ................. 7.01
(e) ................. 6.11
316(a)(last sentence) .... 11.06
(a)(1)(A) ........... 6.05
(a)(1)(B) ........... 6.04
(a)(2) .............. N.A.
(b) ................. 6.07
317(a)(1) ................ 6.08
(a)(2) .............. 6.09
(b) ................. 2.04
318(a) ................... 11.01
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1 Page
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ............................ 1
SECTION 1.02. Other Definitions ...................... 25
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ........................ 25
SECTION 1.04. Rules of Construction .................. 26
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating ........................ 27
SECTION 2.02. Execution and Authentication ........... 27
SECTION 2.03. Registrar and Paying Agent ............. 28
SECTION 2.04. Paying Agent To Hold Money in Trust..... 29
SECTION 2.05. Securityholder Lists ................... 29
SECTION 2.06. Replacement Securities ................. 29
SECTION 2.07. Outstanding Securities ................. 30
SECTION 2.08. Temporary Securities ................... 30
SECTION 2.09. Cancellation ........................... 30
SECTION 2.10. Defaulted Interest ..................... 31
SECTION 2.11. CUSIP Numbers .......................... 31
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee ..................... 31
SECTION 3.02. Selection of Securities To Be
Redeemed ............................. 32
SECTION 3.03. Notice of Redemption ................... 32
SECTION 3.04. Effect of Notice of Redemption ......... 33
SECTION 3.05. Deposit of Redemption Price ............ 33
SECTION 3.06. Securities Redeemed in Part ............ 33
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities .................. 34
SECTION 4.02. SEC Reports ............................ 34
SECTION 4.03. Limitation on Indebtedness ............. 34
SECTION 4.04. Limitation on Indebtedness and
Preferred Stock of Restricted
Subsidiaries ......................... 36
SECTION 4.05. Limitation on Restricted Payments ...... 38
SECTION 4.06. Limitation on Restrictions on Dis-
tributions from Restricted
Subsidiaries .................... 40
SECTION 4.07. Limitation on Sales of Assets and
Subsidiary Stock ..................... 41
SECTION 4.08. Limitation on Affiliate
Transactions ......................... 45
SECTION 4.09. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries ......................... 46
SECTION 4.10. Change of Control ...................... 47
SECTION 4.11. Limitation on Liens .................... 48
SECTION 4.12. Limitation on Sale/Leaseback
Transactions ......................... 49
SECTION 4.13. Compliance Certificate ................. 49
SECTION 4.14. Further Instruments and Acts ........... 49
SECTION 4.15. Future Guarantors ...................... 49
SECTION 4.16. Specifield Subsidiaries ................ 50
ARTICLE 5
Successor Company
<PAGE> 4
SECTION 5.01. When Company May Merge or Transfer
Assets ............................... 50
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default ...................... 52
SECTION 6.02. Acceleration ........................... 54
SECTION 6.03. Other Remedies ......................... 55
SECTION 6.04. Waiver of Past Defaults ................ 55
SECTION 6.05. Control by Majority .................... 55
SECTION 6.06. Limitation on Suits .................... 56
SECTION 6.07. Rights of Holders to Receive Payment ... 56
SECTION 6.08. Collection Suit by Trustee ............. 56
SECTION 6.09. Trustee May File Proofs of Claim ....... 57
SECTION 6.10. Priorities ............................. 57
SECTION 6.11. Undertaking for Costs .................. 58
SECTION 6.12. Waiver of Stay or Extension Laws ....... 58
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee ...................... 58
SECTION 7.02. Rights of Trustee ...................... 60
SECTION 7.03. Individual Rights of Trustee ........... 60
SECTION 7.04. Trustee's Disclaimer ................... 60
SECTION 7.05. Notice of Defaults ..................... 61
SECTION 7.06. Reports by Trustee to Holders .......... 61
SECTION 7.07. Compensation and Indemnity ............. 61
SECTION 7.08. Replacement of Trustee ................. 62
SECTION 7.09. Successor Trustee by Merger ............ 63
SECTION 7.10. Eligibility; Disqualification .......... 64
SECTION 7.11. Preferential Collection of Claims
Against Company ...................... 64
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ........................... 64
SECTION 8.02. Conditions to Defeasance ............... 66
SECTION 8.03. Application of Trust Money ............. 67
SECTION 8.04. Repayment to Company ................... 67
SECTION 8.05. Indemnity for Government
Obligations .......................... 68
SECTION 8.06. Reinstatement .......................... 68
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ............. 68
SECTION 9.02. With Consent of Holders ................ 69
SECTION 9.03. Compliance with Trust Indenture Act .... 71
SECTION 9.04. Revocation and Effect of Consents
and Waivers .......................... 71
SECTION 9.05. Notation on or Exchange of
Securities ........................... 71
SECTION 9.06. Trustee To Sign Amendments ............. 72
SECTION 9.07. Payment for Consent .................... 72
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate .............. 72
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy .......................... 73
SECTION 10.03. Default on Specified Senior Indebtedness
of the Company....................... 73
SECTION 10.04. Acceleration of Payment of
Securities .......................... 74
SECTION 10.05. When Distribution Must Be Paid
Over ................................ 74
SECTION 10.06. Subrogation ........................... 75
<PAGE> 5
SECTION 10.07. Relative Rights ....................... 75
SECTION 10.08. Subordination May Not Be Impaired
by Company .......................... 75
SECTION 10.09. Rights of Trustee and Paying
Agent ............................... 75
SECTION 10.10. Distribution or Notice to
Representative ...................... 76
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate .......................... 76
SECTION 10.12. Trust Moneys Not Subordinated ......... 76
SECTION 10.13. Trustee Entitled To Rely .............. 77
SECTION 10.14. Trustee To Effectuate
Subordination ....................... 77
SECTION 10.15. Trustee Not Fiduciary for Holders
of Specified Senior Indebtedness .... 77
SECTION 10.16. Reliance by Holders of Specified
Senior Indebtedness on Subordination
Provisions ..................... 78
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls .......... 78
SECTION 11.02. Notices ............................... 78
SECTION 11.03. Communication by Holders with Other
Holders ............................. 79
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent ................ 79
SECTION 11.05. Statements Required in Certificate
or Opinion .......................... 80
SECTION 11.06. When Securities Disregarded ........... 80
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar ........................... 81
SECTION 11.08. Legal Holidays ........................ 81
SECTION 11.09. Governing Law ......................... 81
SECTION 11.10. No Recourse Against Others ............ 81
SECTION 11.11. Successors ............................ 81
SECTION 11.12. Multiple Originals .................... 81
SECTION 11.13. Table of Contents; Headings ........... 81
Appendix A - Provisions Relating to Initial Securities,
Private Exchange Securities and Exchange
Securities
Exhibit 1
to Appendix A - Form of Initial Security
Exhibit A - Form of Exchange/Private Exchange Security
Exhibit B - Guaranty Agreement
Schedule I - Scheduled Asset Dispositions
<PAGE> 6
INDENTURE dated as of April 15, 1996,
between IMO INDUSTRIES INC., a Delaware
corporation (the "Company"), and IBJ SCHRODER
BANK & TRUST COMPANY, a banking corporation
duly organized and existing under the laws of
the State of New York (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 11 3/4% Senior
Subordinated Notes Due 2006 (the "Initial Securities") and, if and when issued
pursuant to a registered exchange for Initial Securities, the Company's 11 3/4%
Senior Subordinated Notes Due 2006 (the "Exchange Securities") and, if and when
issued pursuant to a private exchange for Initial Securities, the Company's
11 3/4% Senior Subordinated Notes Due 2006 (the "Private Exchange Securities",
together with the Exchange Securities and the Initial Securities, the
"Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 4.05, 4.07 and 4.08 only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 5% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary or
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (y) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of Section 4.07
only, a disposition that constitutes a Restricted Payment permitted by Section
4.05).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Securities, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of
<PAGE> 7
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Banks" means the "Lenders" as defined in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that such person
shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total voting power of Voting Stock of the
Company;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was
approved by a vote of 66 2/3% of the directors of the Company then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person, and, in the case of any such merger or consolidation, the
securities of the Company that are outstanding immediately prior to
such transaction and which represent 100% of the aggregate voting power
of the Voting Stock of the Company are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving
corporation.
<PAGE> 8
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required solely by the TIA, each other
obligor on the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest of
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking in to
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any
<PAGE> 9
period, the total interest expense of the Company and its consolidated
Restricted Subsidiaries, plus, to the extent not included in such interest
expense, and to the extent incurred by the Company or its Restricted
Subsidiaries, (i) interest expense attributable to capital leases and one- third
of the rental expense attributable to operating leases, (ii) amortization of
debt discount (including original issue discount) and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (A) subject to the exclusion contained in
clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or
other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (B) the Company's equity in a net
loss of any such Person for such period shall be included in
determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other
disposition of any asset of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of Section 4.05 only, there shall
be excluded from Consolidated
<PAGE> 10
Net Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary
to the extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such Section pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means, collectively, the Credit Agreement dated as
of April 29, 1996, among the Company, the Specified Subsidiaries, the financial
institutions from time to time party thereto as Lenders and Issuing Banks,
Citicorp USA, Inc., in its separate capacity as agent for the Lenders and
Issuing Banks, as the same may from time to time be amended, renewed,
supplemented or otherwise modified at the option of the parties thereto and any
other agreement pursuant to which any of the Indebtedness, commitments,
obligations, costs, expenses, fees, reimbursements and other indemnities payable
or owing thereunder may be refinanced, restructured, renewed, extended, refunded
or increased, as any such other agreement may from time to time at the option of
the parties thereto be amended, supplemented, renewed or otherwise modified.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Securities; provided, however, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions of Sections
4.07 and 4.10.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense and (c) amortization expense, in each case for
such period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
<PAGE> 11
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated
in a jurisdiction other than the United States or a State thereof or the
District of Columbia and with respect to which more than 80% of any of its
sales, earnings or assets (determined on a consolidated basis in accordance with
GAAP) are located in, generated from or derived from operations located in
territories outside of the United States of America and jurisdictions outside
the United States of America.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in this Indenture shall be computed in
conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take- or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for
the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such
Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all
<PAGE> 12
conditional sale obligations of such Person and all obligations of such
Person under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business);
(iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or,
if and to the extent drawn upon, such drawing is reimbursed no later
than the tenth Business Day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so
secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; provided, however, that
the amount outstanding at any time of any Indebtedness Incurred with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or (ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary or whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshalling of assets or liabilities of the Company.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted
<PAGE> 13
Subsidiary", the definition of "Restricted Payment" and Section 4.05, (i)
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Securities are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets that are the subject of such
Asset Disposition or received in any other noncash form), in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be, repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the President, any Vice
President (including any Executive Vice President), the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
<PAGE> 14
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such consessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition as permitted pursuant to Section 4.07; (ix) Investments in
joint ventures conducting a Related Business primarily outside of the United
States; provided, however, that (A) so long as the Company holds its investment
as of the Issue Date in Roltra-Morse SpA and, through such investment, the
business conducted as of the Issue Date by Roltra-Morse SpA and its
subsidiaries, such Investments shall not exceed $15,000,000 at any time
outstanding and (B) in the event that the Company no longer holds such
investment in Roltra-Morse SpA and such business conducted by Roltra-Morse and
its subsidiaries, such Investments shall not exceed $5,000,000 at any time
outstanding unless, at the time such Investment is made, the Company would be
able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a),
in which case such Investments shall not exceed $10,000,000 at any time
outstanding; and (x) other Investments that do not exceed $1,000,000 at any time
outstanding.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review; (c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real properties or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions to,
property of such Person; provided, however, that the Lien may not extend to any
other property owned by such Person or any of its Subsidiaries at the time the
Lien is Incurred, and the Indebtedness secured
<PAGE> 15
by the Lien may not be Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien; (g) Liens to
secure Indebtedness permitted under clauses (b)(1) and (b)(2) of Section 4.03
and Indebtedness permitted under Section 4.04(a); (h) Liens existing on the
Issue Date; (i) Liens on property or shares of Capital Stock of another Person
at the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other property
owned by such Person or any of its Subsidiaries; (j) Liens on property at the
time such Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a wholly owned Subsidiary of such Person; (l) Liens securing
Hedging Obligations so long as such Hedging Obligations relate to Indebtedness
that is, and is permitted to be under this Indenture, secured by a Lien on the
same property securing such Hedging Obligations; (m) Liens on inventory and
accounts receivable (and the proceeds thereof) of a Person and Capital Stock of
or held, directly or indirectly, by such Person, in each case securing
Indebtedness Incurred by such Person pursuant to clause (d) of Section 4.04; (n)
purchase money Liens up to an aggregate at any time outstanding of $5 million
upon or in any property acquired or held by such Person in the ordinary course
of business to secure the purchase price of such property; and (o) Liens to
secure any Refinancing (or successive Refinancings) as a whole, or in part, of
any Indebtedness secured by any Lien referred to in the foregoing clauses (f),
(h), (i) and (j); provided, however, that (x) such new Lien shall be limited to
all or part of the same property that secured the original Lien (plus
improvements to or on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (f), (h), (i) or (j) at the time the
original Lien became a Permitted Lien and (B) an amount necessary to pay any
fees and expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement. Notwithstanding the foregoing, "Permitted
Liens" will not include any Lien described in clauses (f), (i) or (j) above to
the extent such Lien applies to any Additional Assets acquired directly or
indirectly from Net Available Cash pursuant to Section 4.07.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means all interest accrued or accruing after
the commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Secu-
<PAGE> 16
rity which is due or overdue or is to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal
amount (or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any)
for an issue of Specified Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock)) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase, or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit
Agreement pursuant to which lenders thereunder have committed to make available
to the Company a revolving credit facility.
<PAGE> 17
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person provided, however, that such a transfer and lease
will not constitute a Sale/Leaseback Transaction if such transfer occurs and
such lease is entered into within 60 days of the acquisition of the subject
property by the Company.
"Scheduled Asset Dispositions" means an Asset Disposition of the real
property or other assets set forth on Schedule I to this Indenture.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" with respect to any Person means (i) the
Securities, (ii) Indebtedness of such Person, whether outstanding on the Issue
Date or thereafter Incurred and (iii) accrued and unpaid interest (including
Post-Petition Interest) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Securities or the applicable Subsidiary
Guaranty, as the case may be; provided, however, that Senior Indebtedness shall
not include (1) any obligation of such Person to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by such Person,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is subordinate or junior
in any respect to any other Indebtedness or other obligation of such Person
(other than Indebtedness that is subordinate or junior only to Specified Senior
Indebtedness) or (5) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of this Indenture; provided, however, that
in the case of this clause (5), any Indebtedness issued to a Person who had no
actual knowledge that the issuance of such Indebtedness was not permitted under
this Indenture and who received on the date of issuance thereof an Officers'
Certificate of the Company to the effect that the issuance of such Indebtedness
would not violate this Indenture will constitute Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Specified Senior Indebtedness" means, (i) with respect to the Company,
Indebtedness of the Company Incurred pursuant to clause (1) or (2) of Section
4.03(b), and (ii) with respect to any Subsidiary Guarantor, Indebtedness of such
Subsidiary Guarantor Incurred pursuant to Section 4.04(a), in the case of each
of clause (i) and (ii), together with accrued and unpaid interest (including
Post-Petition Interest) in respect of such Indebtedness and any costs,
expenses, fees, reimbursements, indemnities and other obligations of the Company
or any Restricted Subsidiary under or in connection with the Credit Agreement.
"Specified Subsidiaries" means Warren Pumps, Inc. and Varo, Inc., each
a wholly owned subsidiary of the Company.
"Stated Maturity" means, with respect to any security or obligation,
the date specified in such security or obligation as the fixed date on which the
final payment of principal of such security or obligation is due and payable,
including, in the case of Preferred Stock, pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
<PAGE> 18
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which by its
terms provides that it is subordinate or junior in right of payment to the
Securities.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Person that delivers a Subsidiary
Guaranty.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
the Company's obligations with respect to the Securities, which Guarantee shall
be substantially in the form of the Guaranty Agreement attached hereto as
Exhibit B.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $50,000,000 (or the foreign currency equivalent
thereof) and has outstanding debt that is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
and Poor's Ratings Group, and (v) investments in securities with maturities of
six months or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make term loans available
to the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers and also means, with respect to a particular corporate trust matter,
any other officer of the Trustee to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
<PAGE> 19
"Uniform Commercial Code" means the New York Uniform Commercial Code as
in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.05. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
SECTION 1.02. Other Definitions.
Term
Defined in
Section
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . 4.08
"Bankruptcy Law". . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Blockage Notice" . . . . . . . . . . . . . . . . . . . . . . . . 10.03
"covenant defeasance option". . . . . . . . . . . . . . . . . . . 8.01(b)
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
<PAGE> 20
"Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"legal defeasance option" . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . 11.08
"Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.07
"Offer Amount". . . . . . . . . . . . . . . . . . . . . . . . . . 4.07
"Offer Period". . . . . . . . . . . . . . . . . . . . . . . . . . 4.07
"pay the Securities". . . . . . . . . . . . . . . . . . . . . . . 10.03
"Paying Agent". . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period" . . . . . . . . . . . . . . . . . . . . 10.03
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . 4.07
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Successor Company" . . . . . . . . . . . . . . . . . . . . . . . 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
<PAGE> 21
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to secured Indebtedness merely by virtue of its nature as
unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP and accretion of principal on such security shall
be deemed to be the Incurrence of Indebtedness;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to
such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally issued
shall refer to the date the Initial Securities were originally issued.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the Initial
Securities, the Private Exchange Securities and the Exchange Securities are set
forth in Appendix A, which is hereby incorporated in and expressly made part of
this Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities, the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit 1 to Appendix A and Exhibit A
are part of the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall sign the
Securities for the Company by manual or facsimile signature. The Company's seal
shall be impressed, affixed, imprinted or reproduced on the Securities and may
be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where
<PAGE> 22
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
due. The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to account
for any funds disbursed by the Paying Agent. Upon complying with this Section,
the Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing not later than
three Business Days following each record date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names, addresses and taxpayer
identification numbers (TINS) of Securityholders.
SECTION 2.06. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. Notwithstanding the foregoing,
if any such mutilated, lost, destroyed or wrongfully taken Security has become
due or is to become due within 15 days of the receipt by the Company of a
request for replacement, the Company may pay such Security when due in lieu of
issuing a replacement Security. If required by the Trustee or the Company, such
Holder shall furnish an indemnity bond sufficient in the judgment of the Company
and the Trustee to protect the Company, the Trustee, the Paying Agent, the
Registrar and any co-registrar from any loss which any of them may suffer if a
Security is replaced. The Company and the Trustee may charge the Holder for any
tax that may be imposed and for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.07. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
<PAGE> 23
If a Security is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to Section 10.02 or 10.03, then on and after that date such
Securities (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.08. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.09. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company in
accordance with the Trustee's customary practice. The Company may not issue new
Securities to replace Securities it has redeemed, paid or, except pursuant to
the Registered Exchange Offer (as defined in Appendix A hereto), delivered to
the Trustee for cancellation.
SECTION 2.10. Defaulted Interest. If the Company defaults in a payment
of interest on the Securities, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.11. CUSIP Numbers. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
<PAGE> 24
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all
the Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption.
Securities and portions thereof selected for redemption shall be in minimum
denominations of $1,000 or a whole multiple of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall notify the Company
promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail, or
cause to be mailed, a notice of redemption by first-class mail to each Holder of
Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the place or places of payment where Securities are to be
surrendered for payment of the redemption price;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification number and principal amounts of the particular
Securities to be redeemed;
(6) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after the
redemption date; and
(7) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money in
immediately available funds, sufficient to pay the redemption price of and
accrued interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the
<PAGE> 25
Company shall execute and the Trustee shall authenticate for the Holder (at the
Company's expense) a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Company shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. The Company shall file with the Trustee and
provide Securityholders, within 15 days after it files them with the SEC, copies
of its annual report and the information, documents and other reports which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject, or may not be
required to remain subject, to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall continue to file with the SEC and provide
the Trustee and Securityholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and reports to be so filed and provided at the times
specified for the filing of such information, documents and reports under such
Sections. The Company also shall comply with the other provisions of TIA Section
314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not
Incur, directly or indirectly, any Indebtedness unless, on the date of such
Incurrence, the Consolidated Coverage Ratio exceeds 2.00 to 1 if such
Indebtedness is Incurred prior to May 1, 1998 or 2.25 to 1 if such Indebtedness
is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur
any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Term Loan Provisions of the
Credit Agreement or any other loan agreement or other agreement in an
aggregate principal amount that, when taken together with the principal
amount of all other Indebtedness Incurred pursuant to this clause (1)
and then outstanding, does not exceed (A) $105,000,000 less (B) the
aggregate amount of all principal repayments of any such Indebtedness
actually made after the Issue Date (other than any such principal
repayments made as a result of the Refinancing of any such
Indebtedness);
(2) Indebtedness Incurred pursuant to the Revolving Credit Provisions
of the Credit Agreement or any other loan agreement or other agreement;
provided, however, that, after giving effect to any such Incurrence,
the aggregate principal amount of such Indebtedness then outstanding
does not exceed the greater of $70,000,000 and the sum of (A) 50% of
the book value of the inventory of the Company and its Restricted
Subsidiaries (other than any Foreign Subsidiary that has Indebtedness
then outstanding Incurred pursuant to Section 4.04(d)) and (B) 85% of
the book value of the accounts receivables of the Company and its
Restricted Subsidiaries (other than any Foreign Subsidiary that has
Indebtedness then outstanding Incurred pursuant to Section 4.04(d));
<PAGE> 26
(3) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to another Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness
by the Company;
(4) the Securities;
(5) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3) or (4) of this Section 4.03(b));
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (4) or (5) of this
Section 4.03(b) or this paragraph (6);
(7) Hedging Obligations directly related to Indebtedness permitted to
be Incurred by the Company pursuant to this Indenture;
(8) Indebtedness consisting of Guarantees of Indebtedness of a Foreign
Subsidiary Incurred pursuant to Section 4.04(d); and
(9) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through
(8) of this Section 4.03(b) or Section 4.03(a)) does not exceed
$10,000,000.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described herein, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described herein.
SECTION 4.04. Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary
to Incur, directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness of a Subsidiary of the Company Incurred solely to
Guarantee Indebtedness of the Company Incurred pursuant to clause (1)
or (2) of Section 4.03(b);
(b) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness or Preferred Stock (other than
to the Company or a Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the issuance of such Indebtedness or Preferred
Stock by the issuer thereof;
(c) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was
acquired by the Company (other than Indebtedness or Preferred Stock
Incurred in connection with, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Subsidiary became
a Subsidiary or was acquired by the Company); provided, however, that
on the date of such acquisition and after
<PAGE> 27
giving effect thereto, the Company would have been able to Incur at
least $1.00 of Indebtedness pursuant to Section 4.03(a);
(d) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount that, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (d) (and any Indebtedness
Incurred by Foreign Subsidiaries prior to the Issue Date solely to
finance its working capital) and then outstanding does not exceed the
sum of (i) 50% of the book value of the inventory of Foreign
Subsidiaries that have Indebtedness Incurred pursuant to this clause
(d) then outstanding and (ii) 85% of the book value of the accounts
receivable of Foreign Subsidiaries that have Indebtedness Incurred
pursuant to this clause (d) then outstanding;
(e) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness described in clause (a), (b), (c) or (d) of
this Section 4.04);
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clause (c) or (e) of this Section 4.04
or this clause (f); provided, however, that to the extent such
Refinancing Indebtedness directly or indirectly Refinances Indebtedness
or Preferred Stock of a Subsidiary described in clause (c) of this
Section 4.04, such Refinancing Indebtedness shall be Incurred only by
such Subsidiary; and
(g) a Subsidiary Guaranty.
SECTION 4.05. Limitation on Restricted Payments. (a) The Company shall
not, and shall not permit any Restricted Subsidiary, directly or indirectly, to
make a Restricted Payment if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning
of the fiscal quarter immediately following the fiscal quarter
during which the Securities are originally issued to the end
of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company and other
than an issuance or sale to an employee stock ownership plan
or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the
Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock)
of the Company (less the amount of any cash, or the fair value
of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers
of assets,
<PAGE> 28
in each case to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, and (ii) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that
the foregoing sum in clause (D) shall not exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The provisions of Section 4.05(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary of the Company or an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries for
the benefit of their employees); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such
sale shall be excluded from the calculation of amounts under clause
(3)(B) of Section 4.05(a);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Company which is permitted to be Incurred
pursuant to Section 4.03; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation of the amount of
Restricted Payments; or
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with Section 4.05(a); provided, however, that at the time of
payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such
dividend shall be included in the calculation of the amount of
Restricted Payments.
SECTION 4.06. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (ii) make any loans or advances to the Company
or (iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by
the Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clause (1) or (2) of this Section 4.06 or this clause (3) or
contained in any amendment to an
<PAGE> 29
agreement referred to in clause (1) or (2) of this Section 4.06 or this
clause (3); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the
Securityholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the
property leased thereunder;
(5) in the case of clause (iii) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(6) any encumbrance or restriction imposed solely upon a Foreign
Subsidiary; and
(7) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition.
SECTION 4.07. Limitation on Sales of Assets and Subsidiary Stock. (a)
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset Disposition and
(except in the case of a Scheduled Asset Disposition) at least 85% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Senior Indebtedness), to
prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other
than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other
than Indebtedness owed to the Company or an Affiliate of the Company) within one
year from the later of the date of such Asset Disposition or the receipt of such
Net Available Cash; (B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to the extent
the Company elects, to acquire Additional Assets within one year from the later
of the date of such Asset Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an Offer to the
holders of the Securities (and to holders of other Senior Indebtedness
designated by the Company) to purchase Securities (and such other Senior
Indebtedness) pursuant to and subject to the conditions of Section 4.07(b); and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to (x) the acquisition
by the Company or any Wholly Owned Subsidiary of Additional Assets or (y) the
prepayment, repayment or purchase of Indebtedness (other than Disqualified
Stock) of the Company (other than Indebtedness owed to an Affiliate of the
Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the
Company or an Affiliate of the Company), in each case within one year from the
later of the receipt of such Net Available Cash and the date the offer described
in Section 4.07(b) is consummated; provided, however that in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or
(D) above (other than such prepayment, repayment or purchase with the Net
Available Cash from a Scheduled Asset Disposition or such repayment or
prepayment of Indebtedness Incurred pursuant to clause (2) of Section 4.03(b)),
the Company or such Restricted Subsidiary shall retire such Indebtedness and
shall cause the related loan commitment (if
<PAGE> 30
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this
Section 4.07(a), the Company and the Restricted Subsidiaries shall not be
required to apply any Net Available Cash in accordance with this Section 4.07(a)
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which are not applied in accordance with this Section 4.07(a)
exceed $10,000,000. Pending application of Net Available Cash pursuant to this
Section 4.07(a), such Net Available Cash shall be invested in Permitted
Investments or applied to reduce outstanding Indebtedness Incurred pursuant to
clause (2) of Section 4.03(b).
For the purposes of this Section 4.07, the following are deemed to be
cash or cash equivalents: (x) the assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to Section 4.07(a)(ii)(C), the Company shall be required
to purchase Securities tendered pursuant to an offer by the Company for the
Securities (and other Senior Indebtedness) (the "Offer") at a purchase price of
100% of their principal amount (without premium) plus accrued but unpaid
interest (or, in respect of such other Senior Indebtedness, such lesser price,
if any, as may be provided for by the terms of such Senior Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in Section 4.07(c). If the aggregate purchase price
of Securities (and any other Senior Indebtedness) tendered pursuant to the Offer
is less than the Net Available Cash allotted to the purchase thereof, the
Company shall be required to apply the remaining Net Available Cash in
accordance with Section 4.07(a)(ii)(D). The Company shall not be required to
make an Offer to purchase Securities (and other Senior Indebtedness) pursuant to
this Section 4.07 if the Net Available Cash available therefor is less than
$10,000,000 (which lesser amount shall be carried forward for purposes of
determining whether such an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such reports, and (iii) if material, appropriate pro forma financial information
and all instructions and materials necessary to tender Securities pursuant to
the Offer, together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.07(a). On such date, the
Company
<PAGE> 31
shall also irrevocably deposit with the Trustee or with a paying agent (or, if
the Company is acting as its own paying agent, segregate and hold in trust) in
Temporary Cash Investments, maturing on the last day prior to the Purchase Date,
an amount equal to the Offer Amount to be held for payment in accordance with
the provisions of this Section. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee shall,
on the Purchase Date, mail or deliver payment to each tendering Holder in the
amount of the purchase price. In the event that the aggregate purchase price of
the Securities delivered by the Company to the Trustee is less than the Offer
Amount, the Trustee shall deliver the excess to the Company immediately after
the expiration of the Offer Period for application in accordance with this
Section.
(3) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least two Business Days prior
to the Purchase Date. Holders shall be entitled to withdraw their election if
the Trustee or the Company receives not later than one Business Day prior to the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part shall be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.08. Limitation on Affiliate Transactions. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (i) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $2,500,000, (1) are set
forth in writing and (2) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction and
(iii) if such Affiliate Transaction involves an amount in excess of $10,000,000,
have been determined by a nationally recognized investment banking firm to be
fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries.
(b) The provisions of Section 4.08(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.05, (ii) any
issuance of securities,
<PAGE> 32
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with past practices of the Company
or its Restricted Subsidiaries, but in any event not to exceed $1,000,000 in the
aggregate at any one time, (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries and (vi) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries.
SECTION 4.09. Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except (i) to the Company or a Wholly
Owned Subsidiary or (ii) if, immediately after giving effect to such issuance,
sale or other disposition, the Company and its Restricted Subsidiaries would own
less than 20% of the Voting Stock of such Restricted Subsidiary and have no
greater economic interest in such Restricted Subsidiary.
SECTION 4.10. Change of Control. (a) Upon a Change of Control, each
Holder shall have the right to require that the Company repurchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on a record date to receive interest
on the relevant interest payment date), in accordance with the terms
contemplated in Section 4.10(b). In the event that at the time of such Change of
Control the terms of the Specified Senior Indebtedness of the Company restrict
or prohibit the repurchase of Securities pursuant to this Section, then prior to
the mailing of the notice to Holders provided for in Section 4.10(b) below but
in any event within 30 days following any Change of Control, the Company shall
(i) repay in full all such Specified Senior Indebtedness or offer to repay in
full all such Specified Senior Indebtedness and repay such Specified Senior
Indebtedness of each lender who has accepted such offer or (ii) obtain the
requisite consent under the agreements governing such Specified Senior
Indebtedness to permit the repurchase of the Securities as provided for in
Section 4.10(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on a record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such
Change of Control);
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least two Business Days prior
to the purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not
<PAGE> 33
later than one Business Day prior to the purchase date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security which was delivered for purchase by the Holder
and a statement that such Holder is withdrawing his election to have such
Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered to the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.11. Limitation on Liens. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to
exist any Lien of any nature whatsoever on any of its properties (including
Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Securities shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured.
SECTION 4.12. Limitation on Sale/Leaseback Transactions. The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the Company
or such Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to Section 4.03 and (B) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the Securities pursuant
to Section 4.11, (ii) the net cash proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Company applies the proceeds of such transaction in
compliance with Section 4.07.
SECTION 4.13. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA Section 314(a)(4).
SECTION 4.14. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.15. Future Guarantors. In the event that, after the Issue
Date, a Subsidiary (other than a Specified Subsidiary) Guarantees any
Indebtedness of the Company incurred pursuant to clause (1) or (2) of Section
4.03(b), the Company shall cause such Subsidiary to Guarantee the Securities
pursuant to a Subsidiary Guaranty.
<PAGE> 34
SECTION 4.16. Specified Subsidiaries. The Company shall not, and shall
not permit any Restricted Subsidiary to, make any Investment in a Specified
Subsidiary or transfer any assets or other property to a Specified Subsidiary;
provided, however, that the foregoing shall not prohibit (i) the Company from
providing treasury functions to a Specified Subsidiary or (ii) the transfer of
inventory and equipment, furniture, computers and related equipment among the
Company and such Specified Subsidiaries, in each case in the ordinary course of
business consistent with past practices.
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. (a) The
Company shall not consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or substantially
all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of
the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly
assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form acceptable to the Trustee, all the obligations of
the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company
or any Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture, and the predecessor Company in the case of a
conveyance, transfer or lease shall be released from the obligations under this
Indenture and with respect to the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company.
(b) The Company shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person unless: (i) the resulting, surviving or transferee Person (if not
such Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of the
United States of America, or any State hereof or the District of Columbia, and
such Person shall expressly assume, by a supplemental indenture to this
Indenture, in a form acceptable to the Trustee, all the obligations of such
Subsidiary, if any, under its Subsidiary Guaranty; (ii) immediately after giving
effect to such transaction or
<PAGE> 35
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii) the
Company delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
amendment to this Indenture, if any, complies with this Indenture.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment
shall be prohibited by Article 10, and such default continues for a
period of 30 days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity,
upon redemption, upon declaration or otherwise, whether or not such
payment shall be prohibited by Article 10, or (ii) fails to redeem or
purchase Securities when required pursuant to this Indenture or the
Securities, whether or not such redemption or purchase shall be
prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.15 or 4.16 (other than a
failure to purchase Securities when required under Section 4.07 or
4.10) and such failure continues for 30 days after the notice specified
below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause
(1), (2), (3) or (4) above) and such failure continues for 60 days
after the notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5,000,000 or
its foreign currency equivalent at the time;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in
an involuntary case;
(C) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
<PAGE> 36
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or decree
remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$5,000,000 or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary, remains outstanding
for a period of 60 days following the entry of such judgment or decree
and is not discharged, waived or the execution thereof stayed within 10
days after the notice specified below; or
(10) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clauses (4), (5) or (9) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default specified in Section 6.01(7) or (8) with respect to the Company)
occurs and is continuing, the Trustee by written notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by written notice
to the Company and the Trustee, may declare the principal of and accrued
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company occurs,
the principal of and interest on all the Securities shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Securityholders. The Holders of a majority in principal
amount of the Securities by notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce
<PAGE> 37
any of them in the proceeding. A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. The Trustee
shall be under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holders shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
SECTION 6.06. Limitation on Suits. Subject to Section 6.07, a
Securityholder may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment
of principal of and interest on the Securities held by such Holder, on or
after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company,
<PAGE> 38
its creditors or its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Specified Senior Indebtedness of the Company to
the extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities
for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
<PAGE> 39
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent,
<PAGE> 40
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each Securityholder
notice of the Default within 90 days after it occurs. Except in the case of a
Default in payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may withhold the notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Trust Officers of the Trustee in good faith determine that withholding the
notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to July 15 in each year, the Trustee shall
mail to each Securityholder a brief report dated as of May 15 that complies with
TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time reasonable compensation for its services as agreed
between the Company and the Trustee. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Company shall indemnify the Trustee
against any and all loss, liability or expense (including attorneys' fees)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company in writing at least 30 days prior to the date
of the proposed resignation. The Holders of a majority in principal amount of
the Securities may remove the Trustee by
<PAGE> 41
so notifying the Trustee and may appoint a successor Trustee. The Company shall
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
at least 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
<PAGE> 42
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Sec. 311(a), excluding any creditor relationship
listed in TIA Section 311(b). A Trustee who has resigned or been removed shall
be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.06) for cancellation or (ii) all
outstanding Securities have become due and payable at maturity or will be due
and payable within 35 days as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof, in each case, and the Company irrevocably deposits
with the Trustee funds sufficient to pay at maturity or upon redemption all
outstanding Securities, including interest thereon to maturity or such
redemption date (other than Securities replaced pursuant to Section 2.06), and
if in either case the Company pays all other sums payable hereunder by the
Company, then this Indenture shall, subject to Section 8.01(c), cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel as to the satisfaction of all conditions to such
satisfaction and discharge of this Indenture and at the cost and expense of the
Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.15 and 4.16 and the
operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in
the case of Sections 6.01(7) and (8), with respect only to Significant
Subsidiaries) or the limitations contained in Sections 5.01(a)(iii) and (iv)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.01(4),
6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and
(8), with respect only to Significant Subsidiaries) or because of the failure of
the Company to comply with Section 5.01(a)(iii) or (iv) or Section 5.01(b)(iii).
If the Company exercises its legal defeasance option or its covenant defeasance
option, each Subsidiary Guarantor, if any, shall be released from all its
obligations under its Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05 and
8.06 shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and
interest on the Securities to maturity or redemption, as the case may
be;
(2) in the case of a deposit of U.S. Government Obligations, the
Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion
that the pay-
<PAGE> 43
ments of principal and interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited money
without investment will provide cash at such times and in such amounts
as will be sufficient to pay principal and interest when due on all the
Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to
the Company occurs which is continuing at the end of the period;
(4) the Company delivers to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with
the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company;
(5) neither the deposit nor the defeasance shall result in a default or
event of default under any other agreement to which the Company is a
party or by which the Company is bound and neither shall be prohibited
by Article 10;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(7) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture
there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that
the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance
and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time, subject to Section 7.07.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon its written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the
<PAGE> 44
money must look to the Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place
of certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section
163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Specified Senior Indebtedness (or
Representatives therefor) under Article 10;
(5) to add guarantees with respect to the Securities, including any
Subsidiary Guaranties, or to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under
the TIA; or
(8) to make any change that does not adversely affect the rights of any
Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Specified Senior
Indebtedness then outstanding unless the holders of such Specified Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change in accordance with the terms governing such
Specified Senior Indebtedness.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
<PAGE> 45
SECTION 9.02. With Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to any Securityholder but
with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance
with Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 that adversely affects the rights of
such Securityholder under Article 10;
(7) make any change in Section 6.04 or 6.07 or the second sentence of
this Section; or
(8) make any change in any Subsidiary Guaranty (including the
subordination provisions of such Subsidiary Guaranty) that would
adversely affect such Securityholder.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Specified Senior
Indebtedness then outstanding unless the holders of such Specified Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change in accordance with the terms governing such
Specified Senior Indebtedness.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent
to an amendment, supplement or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives written notice of
revocation before the date the amendment, supplement or waiver becomes
effective. After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder. An amendment, supplement or waiver becomes effective
in accordance with its terms.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such
<PAGE> 46
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such amendment is authorized or permitted by this Indenture and that such
amendment constitutes the legal, valid and binding obligation of the Company and
each Subsidiary Guarantor, if any, subject to customary exceptions.
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities is subordinated in right of payment to the extent and in the
manner provided in this Article 10, to the prior payment in full in cash or cash
equivalents of all Specified Senior Indebtedness of the Company and that the
subordination is for the benefit of and enforceable by the holders of such
Specified Senior Indebtedness. The Securities shall in all respects rank pari
passu with all other Senior Indebtedness of the Company and only Indebtedness of
the Company which is Specified Senior Indebtedness shall rank senior to the
Securities in accordance with the provisions set forth herein. All provisions of
this Article 10 shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets of the Company to creditors in an Insolvency or
Liquidation Proceeding relating to the Company or its property:
(1) holders of Specified Senior Indebtedness of the Company shall be
entitled to receive payment in full in cash or cash equivalents of such
Specified Senior Indebtedness before Securityholders shall be entitled
to receive any payment of principal of, interest on or any other amount
payable in respect of the Securities; and
(2) until such Specified Senior Indebtedness is paid in full in cash or
cash equivalents, any distribution to which Securityholders would be
entitled but for this Article 10 shall be made to holders of such
Specified Senior Indebtedness as their interests may appear, except
that Securityholders may receive shares of stock and any debt
securities that are subordinated to such Specified Senior
Indebtedness, and any debt securities received by holders of Specified
Senior
<PAGE> 47
Indebtedness, to at least the same extent as the Securities are
subordinated to Specified Senior Indebtedness of the Company; provided
that any such debt securities received by Securityholders shall have a
Stated Maturity no earlier than (and shall not provide for scheduled
payments of principal prior to) the Stated Maturity of such Specified
Senior Indebtedness or any debt securities received by holders of
Specified Senior Indebtedness.
SECTION 10.03. Default on Specified Senior Indebtedness of the Company.
The Company may not pay the principal of, interest on or any other amount
payable in respect of the Securities or make any deposit pursuant to Section
8.01 and may not repurchase, redeem or defease any Securities (collectively,
"pay the Securities") if (i) any Specified Senior Indebtedness of the Company is
not paid when due or (ii) any other default on such Specified Senior
Indebtedness occurs and the maturity of such Specified Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, (x) the default
has been cured or waived and any such acceleration has been rescinded or (y)
such Specified Senior Indebtedness has been paid in full in cash or cash
equivalents; provided, however, that the Company may pay the Securities without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of such Specified Senior
Indebtedness. During the continuance of any default (other than a default
described in clause (i) or (ii) of the preceding sentence) with respect to any
Specified Senior Indebtedness of the Company pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or after the expiration
of any applicable grace periods, the Company may not pay the Securities for a
period (a "Payment Blockage Period") commencing upon the receipt by the Company
and the Trustee of written notice (a "Blockage Notice") of such default from the
Representative of such Specified Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
by repayment in full of such Specified Senior Indebtedness in cash or cash
equivalents or (iii) because the default giving rise to such Blockage Notice is
no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this Section), unless the holders of Specified Senior
Indebtedness of the Company or the Representative of such holders shall have
accelerated the maturity of such Specified Senior Indebtedness, the Company may
resume payments on the Securities after such Payment Blockage Period. Not more
than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to such Specified Senior
Indebtedness during such period.
SECTION 10.04. Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of the Specified Senior Indebtedness
of the Company (or their Representative) of the acceleration.
SECTION 10.05. When Distribution Must Be Paid Over. If a distribution
is made to Securityholders that because of this Article 10 should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Specified Senior Indebtedness of the Company and pay it
over to them as their interests may appear.
SECTION 10.06. Subrogation. After all Specified Senior Indebtedness of
the Company is paid in full in cash or cash equivalents and until the Securities
are paid in full, the Securityholders shall be subrogated to the rights of
holders of such Specified Senior Indebtedness to receive distributions
applicable to such Specified Senior Indebtedness. A distribution made under this
Article 10 to holders of such Specified Senior Indebtedness which otherwise
would have been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company on such Specified Senior Indebtedness.
<PAGE> 48
SECTION 10.07. Relative Rights. This Article 10 defines the relative
rights of Securityholders and holders of Specified Senior Indebtedness of the
Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders
of Specified Senior Indebtedness of the Company to receive
distributions otherwise payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No right
of any holder of Specified Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; provided,
however, that, if the holders of Specified Senior Indebtedness of the Company
have a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Specified Senior Indebtedness of the Company with the same rights it would have
if it were not Trustee. The Registrar and co-registrar and the Paying Agent may
do the same with like rights. The Trustee shall be entitled to all the rights
set forth in this Article 10 with respect to any Specified Senior Indebtedness
of the Company which may at any time be held by it, to the same extent as any
other holder of such Specified Senior Indebtedness; and nothing in Article 7
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article 10 shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Specified Senior
Indebtedness of the Company, the distribution may be made and the notice given
to their Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as
preventing the occurrence of a Default. Nothing in this Article 10 shall have
any effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Specified Senior Indebtedness or subject to the
restrictions set forth in this Article 10, and none of the Securityholders
shall be obligated to pay over any such amount to the Company or any holder of
Specified Senior Indebtedness of the Company or any other creditor of the
Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the
<PAGE> 49
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Securityholders or (iii) upon the Representative for
the holders of Specified Senior Indebtedness of the Company for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of such Specified Senior Indebtedness, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 10. In the event that
the Trustee determines, in good faith, that evidence is required with respect to
the right of any Person as a holder of Specified Senior Indebtedness of the
Company to participate in any payment or distribution pursuant to this Article
10, the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Specified Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article 10 and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 7.01 and 7.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Specified Senior Indebtedness of the Company as provided in this Article 10 and
appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Specified Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Specified Senior Indebtedness and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Securityholders or the
Company or any other Person, money or assets to which any holders of Specified
Senior Indebtedness of the Company shall be entitled by virtue of this Article
10 or otherwise.
SECTION 10.16. Reliance by Holders of Specified Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any
Specified Senior Indebtedness of the Company, whether such Specified Senior
Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such
Specified Senior Indebtedness and such holder of such Specified Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Specified Senior Indebtedness.
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or any Subsidiary Guarantor:
IMO Industries Inc.
1009 Lenox Drive
Building Four West
Lawrenceville, NJ 08648-0550
Tel: (609) 869-7600
Fax: (609) 869-7688
Attention: Treasurer
<PAGE> 50
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Tel: (212) 858-2246
Fax: (212) 858-2952
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
acceptable to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably acceptable
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with; provided
that with respect to matters of fact, an Opinion of Counsel may rely on
Officers' Certificates or certificates of public officials.
SECTION 11.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be
<PAGE> 51
protected in relying on any such direction, waiver or consent, only Securities
which the Trustee knows are so owned shall be so disregarded. Also, subject to
the foregoing, only Securities outstanding at the time shall be considered in
any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the City of New York or at a place of payment by law, regulation or government
order. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date
shall not be affected.
SECTION 11.09. Governing Law. This Indenture and the Securities shall
be governed by, and construed in accordance with, the law of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
IMO INDUSTRIES INC.,
by: /s/ R. A. Derr II
-------------------------
Name: Robert A. Derr II
Title: Vice President and Treasurer
IBJ SCHRODER BANK & TRUST
COMPANY,
by: /s/ Irene Teutonico
--------------------------
Name: Irene Teutonico
Title: Assistant Vice President
<PAGE> 52
APPENDIX A
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED
IN RULE 501(A)(1), (2), (3) OR (7)) AND TO CERTAIN PERSONS
IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Definitive Security" means a certificated Initial Security bearing the
restricted securities legend set forth in Section 2.3(d) and which is held by an
IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Exchange Securities" means the 11 3/4% Senior Subordinated Notes Due
2006 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Rights Agreement.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act and Regulation D promulgated
thereunder.
"Initial Purchasers" means each of CS First Boston Corporation,
Citicorp Securities, Inc. and Lehman Brothers Inc.
"Initial Securities" means the 11 3/4% Senior Subordinated Notes Due
2006, issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Company, pursuant to the
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
each Initial Purchaser, in exchange for the Initial Securities held by the
Initial Purchaser as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Purchase Agreement" means the Purchase Agreement dated April 23, 1996,
between the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant to
the Registration Rights Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Rights Agreement" means the Registration Rights Agreement
dated April 23, 1996, among the Company and the Initial Purchasers.
"Securities" means the Initial Securities, the Exchange Securities and
the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company, in connection
<PAGE> 53
with the offer and sale of Initial Securities or Private Exchange Securities,
pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Definitive Securities and
Securities that bear or are required to bear the legend set forth in Section
2.3(d)hereto.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section:
<S> <C>
"Agent Members" . . . . . . . . . . . . . . . . . . 2.1(b)
"Global Security" . . . . . . . . . . . . . . . . . 2.1(a)
"Regulation S". . . . . . . . . . . . . . . . . . . 2.1(a)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
2. The Securities.
2.1 Form and Dating.
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on
Regulation S under the Securities Act ("Regulation S"), in each case as provided
in the Purchase Agreement, shall be issued initially in the form of one or more
permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and restricted securities
legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be
deposited on behalf of the purchasers of the Initial Securities represented
thereby with the Trustee, at its New York office, as custodian for the
Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as provided in the
Indenture. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Security, including the giving of
any notice, information or other communication required to be furnished to the
Depository or its nominee as the Holder of such Global Security.
(c) Definitive Securities. Except as provided in this Section 2.1 or
Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not
be entitled to receive physical delivery of certificated Securities. Purchasers
of Initial Securities who are IAI's and are not QIBs and did not
<PAGE> 54
purchase Initial Securities sold in reliance on Regulation S will receive
Definitive Securities; provided, however, that upon transfer of such Definitive
Securities to a QIB, such Definitive Securities will, unless the Global Security
has previously been exchanged, be exchanged for an interest in a Global Security
pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount of
$155,000,000 and (2) Exchange Securities or Private Exchange Securities for
issue only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount of
Initial Securities, in each case upon a written order in the form of an
Officers' Certificate. Such Officers' Certificate shall specify the amount of
the Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Securities, Exchange Securities or Private Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$155,000,000 except as provided in Section 2.06 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Securities. When Definitive Securities are presented to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested provided that the requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the
Company and the Registrar or co-registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing;
and
(ii) are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act,
pursuant to Section 2.3(b) or pursuant to clause (A), (B) or
(C) below, and are accompanied by the following additional
information and documents, as applicable:
(A) if such Definitive Securities are being delivered
to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a
certification to that effect (in the form set forth
on the reverse of the Security); or
(B) if such Definitive Securities are being
transferred to the Company, a certification to that
effect (in the form set forth on the reverse of the
Security); or
(C) if such Definitive Securities are being
transferred pursuant to an exemption from
registration in accordance with Rule 144, (i) a
certification to that effect (in the form set forth
on the reverse of the Security) and (ii) if the
Company so requests, an opinion of counsel or other
evidence reasonably acceptable to them as to the
compliance with the restrictions set forth in the
legend set forth in Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred
(A) to a QIB in accordance with
<PAGE> 55
Rule 144A, or (B) outside the United States in an offshore
transaction within the meaning of Regulation S and in
compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its
books and records with respect to such Global Security to
reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security, such
instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so cancelled.
(c) Transfer and Exchange of Global Securities. (i) The
transfer and exchange of Global Securities or beneficial interests therein shall
be effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor. A transferor of a beneficial interest in a Global
Security shall deliver to the Registrar a written order given in accordance with
the Depositary's procedures containing information regarding the participant
account of the Depositary to be credited with a beneficial interest in the
Global Security. The Registrar shall, in accordance with such instructions,
instruct the Depositary to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Security and to debit the
account of the Person making the transfer the beneficial interest in the Global
Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix A
(other than the provisions set forth in Section 2.4), a Global
Security may not be transferred as a whole except by the
Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor
Depository.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section
2.4 prior to the consummation of a Registered Exchange Offer
or the effectiveness of a Shelf Registration Statement with
respect to such Securities, such Securities may be exchanged
only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including
the certification requirements set forth on the reverse of the
Initial Securities intended to ensure that such transfers
comply with Rule 144A or Regulation S, as the case may be) and
such other procedures as may from time to time be adopted by
the Company.
(d) Legend.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the
Global Securities and the Definitive Securities (and all
Securities issued in exchange therefor or in substitution
thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS
SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED
THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER.
<PAGE> 56
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE)OR (IV) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF
CASES (I) THROUGH (IV) ABOVE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE."
Each Definitive Security will also bear the following
additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER
TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES
AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Security) pursuant to Rule 144 under
the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall
permit the Holder thereof to exchange such Transfer
Restricted Security for a Definitive Security that does
not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted Security
that is represented by a Global Security, the Registrar
shall permit the Holder thereof to exchange such
Transfer Restricted Security for a Definitive Security
that does not bear the legend set forth above and
rescind any restriction on the transfer of such
Transfer Restricted Security,
in either case, if the Holder certifies in writing to the Registrar that its
request for such exchange was made in reliance on Rule 144 (such certification
to be in the form set forth on the reverse of the Initial Security) and, in the
case of any Transfer Restricted Security that is a Definitive Security, such
Holder provides the other documentation set forth in Section 2.3(a)(ii)(C) to
the extent requested by the Company.
(iii) After a transfer of any Initial Securities or Private
Exchange Securities during the period of the effectiveness of
a Shelf Registration Statement with respect to such Initial
Securities or Private Exchange Securities, as the case may be,
all requirements pertaining to legends on such Initial
Security or such Private Exchange Security will cease to
apply, the requirements requiring any such Initial Security or
such Private Exchange Security issued to certain Holders be
issued in global form will cease to apply, and an Initial
Security or Private Exchange Security in certificated or
global form without legends will be available to the
transferee of the Holder of such Initial Securities or Private
Exchange Securities upon exchange of such transferring
Holder's certificated Initial Security or Private Exchange
Security. Upon the occurrence of any of the circumstances
described in this paragraph, the Company will deliver an
officers' certificate to the Trustee instructing the Trustee
to issue Securities without legends.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which certain
Holders of such Initial Securities are offered Exchange
Securities in exchange for their Initial Securities, all
requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in
global form will cease to apply and certificated Initial
Securities with the restricted
<PAGE> 57
securities legend set forth in Exhibit 1 hereto will be
available to Holders of such Initial Securities that do not
exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders that
exchange such Initial Securities in such Registered Exchange
Offer. Upon the occurrence of any of the circumstances
described in this paragraph, the Company will deliver an
Officers' Certificate to the Trustee instructing the Trustee
to issue Securities without legends.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Securities pursuant to which certain Holders of
such Initial Securities are offered Private Exchange
Securities in exchange for their Initial Securities, all
requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in
global form will still apply, and Private Exchange Securities
in global form with the Restricted Securities Legend set forth
in Exhibit 1 hereto will be available to Holders that exchange
such Initial Securities in such Private Exchange.
(e) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for certificated or Definitive Securities, redeemed, repurchased or canceled,
such Global Security shall be returned to the Depository for cancellation or
retained and canceled by the Trustee. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
certificated Securities, Definitive Securities and Global
Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax, assessments, or
similar governmental charge payable in connection therewith
(other than any such transfer taxes, assessments or similar
governmental charge payable upon exchange or transfer pursuant
to Sections 3.06 and 4.10.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated
or Definitive Security selected for redemption in whole or in
part pursuant to Article 3 of this Indenture, except the
unredeemed portion of any certificated or Definitive Security
being redeemed in part, or (b) any Security for a period
beginning 15 days before the mailing of a notice of an offer
to repurchase or redeem Securities or 15 days before an
interest payment date.
(iv) Prior to the due presentation for registration or
transfer of any Security, the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat
the person in whose name a Security is registered as the
Holder of such Security for the purpose of receiving payment
of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is
overdue, and none of the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by
notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the
same debt and shall be entitled to the same benefits under
this Indenture as the Securities surrendered upon such
transfer or exchange.
(g) No Obligation of the Trustee.
<PAGE> 58
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a
participant in the Depository or other Person with respect to
the accuracy of the records of the Depository or its nominee
or of any participant or member thereof, with respect to any
ownership interest in the Securities or with respect to the
delivery to any participant, member, beneficial owner or other
Person (other than the Depository) of any notice (including
any notice of redemption) or the payment of any amount, under
or with respect to such Securities. All notices and
communications (other than the furnishing of information by
the Trustee pursuant to Section 4.02 and the distribution of
notice for the Registered Exchange Offer) to be given to the
Holders and all payments to be made to Holders under the
Securities shall be given or made only to or upon the order of
the registered Holders (which shall be the Depository or its
nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised
only through the Depository subject to the applicable rules
and procedures of the Depository. The Trustee may rely and
shall be fully protected in relying upon information furnished
by the Depository with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law
with respect to any transfer of any interest in any Security
(including any transfers between or among Depository
participants, members or beneficial owners in any Global
Security) other than to require delivery of such certificates
and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine
substantial compliance as to form with the express
requirements hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depository or with
the Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
furnishes the Trustee with an Officers' Certificate of its election to cause the
issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.4 shall be surrendered by the
Depository to the Trustee located in the Borough of Manhattan, The City of New
York, to be so transferred, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such transfer of
each portion of such Global Security, an equal aggregate principal amount of
certificated Initial Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in minimum denominations of $1,000 and any
integral multiple thereof and registered in such names as the Depository shall
direct. Any certificated Initial Security delivered in exchange for an interest
in the Global Security shall, except as otherwise provided by Section 2.3(d),
bear the restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the
<PAGE> 59
events specified in Section 2.4(a)(i), (ii) or (iii), the Company will promptly
make available to the Trustee a reasonable supply of certificated Securities in
definitive, fully registered form without interest coupons.
<PAGE> 60
EXHIBIT 1
to
APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.]1/
- ------------------------
1/ Include if a Definitive Security to be held by an institutional "accredited
investor" (as defined in Rule 501(a), (1), (2), (3) or (7) under the
Securities Act).
<PAGE> 61
CUSIP No.
No. $
11 3/4% Senior Subordinated Notes Due 2006
IMO INDUSTRIES INC., a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of
Dollars on May 1, 2006.
Interest Payment Dates: November 1 and May 1, commencing November 1,
1996.
Record Dates: October 15 and April 15.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
IMO INDUSTRIES INC.,
by
-----------------------
President
-----------------------
Secretary
<PAGE> 62
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK &
TRUST COMPANY,
as Trustee,
This is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE> 63
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11 3/4% Senior Subordinated Note Due 2006
1. Interest
Imo Industries Inc., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above; provided, however, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
interest will accrue on this Security at a rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. The
Company will pay interest semiannually on November 1 and May 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities at the close
of business on the October 15 or April 15 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company and in accordance with the operational
procedures then in effect between the Trustee and The Depository Trust Company.
The Company will make all payments in respect of a certificated Security
(including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
the Securities may also be made, in the case of a Holder of at least $1,000,000
aggregate principal amount of Securities, by wire transfer to a U.S. dollar
account maintained by the payee with a bank in the United States if such Holder
elects payment by wire transfer by giving written notice to the Trustee or the
Paying Agent to such effect designating such account no later than 30 days
immediately preceding the relevant due date for payment (or such other date as
the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a banking corporation
duly organized and existing under the laws of the State of New York ("Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or any of
its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of April
15, 1996 ("Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of
<PAGE> 64
1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the
Indenture (the "Act"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the Act
for a statement of those terms.
The Securities are general unsecured obligations of the Company limited
to $155,000,000 aggregate principal amount (subject to Section 2.06 of the
Indenture). The Indenture contains certain covenants that, among other things,
limit (i) the issuance of additional indebtedness by the Company, (ii) the
issuance of indebtedness and preferred stock by certain of the Company's
subsidiaries, (iii) the payment of dividends on capital stock of the Company and
certain of its subsidiaries and the purchase, redemption or retirement of
capital stock or subordinated indebtedness, (iv) investments, (v) certain
transactions with affiliates, (vi) sales of assets, including capital stock of
subsidiaries, and (vii) certain consolidations, mergers and transfers of assets.
The Indenture also prohibits certain restrictions on distributions from certain
subsidiaries. In addition, the Company may be obligated, under certain
circumstances and subject to the limitations set out in the Indenture, to offer
to repurchase Securities at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to May 1, 2001. On and after that date, the Company may redeem
the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date) if redeemed during the 12-month period commencing on or
after May 1 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
<S> <C>
2001. . . . . . . . . . . . . . . . . . 106.00
2002. . . . . . . . . . . . . . . . . . 104.00
2003. . . . . . . . . . . . . . . . . . 102.00
2004 and thereafter . . . . . . . . . . 100.00
</TABLE>
In addition, at any time prior to May 1, 1999, the Company may redeem
up to $55,000,000 of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering, at any time or from time to time, at a
redemption price (expressed as a percentage of principal amount) of 110% plus
accrued interest to redemption date (subject to the right of Holders of record
on the relevant record date to receive interest due on the related interest
payment date); provided, however, that at least $100,000,000 aggregate principal
amount of the Securities remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. If money sufficient to pay the redemption price of
and accrued interest on all Securities (or portions thereof) to be redeemed on
the redemption date is deposited with the Paying Agent prior to the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions, to cause the Company to repurchase all or any
part of the Securities of such Holder at a repurchase price equal to 101% of the
principal amount of the Securities to be repurchased plus accrued interest to
the date of repurchase (subject to the
<PAGE> 65
right of holders of record on the relevant record date to receive interest due
on the related interest payment date) as provided in, and subject to the terms
of, the Indenture.
8. Guaranties
The Company has agreed that in the event that, after the Issue Date, a
Subsidiary (other than a Specified Subsidiary) guarantees certain indebtedness
of the Company, the Company shall cause such Subsidiary to guarantee the
Obligations on a senior subordinated basis pursuant to the terms of the
Indenture. Any such guaranty with respect to any such Subsidiary shall only be
in effect so long as such Subsidiary shall guarantee such other indebtedness of
the Company.
9. Subordination
The Securities are subordinated to Specified Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Specified Senior Indebtedness of the Company must be paid before the Securities
may be paid. The Company agrees, and each Securityholder by accepting a Security
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in authorized
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, minimum denominations of $200,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements or transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15 days before a
selection of Securities to be redeemed or 15 days before an interest payment
date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall, subject to the terms of the
Indenture, pay the money back to the Company at its written request unless an
abandoned property law designates another Person. After any such payment,
Holders entitled to the money must look only to the Company and not to the
Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the Securities and (ii)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority
<PAGE> 66
in principal amount of the Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company and the
Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make certain
changes in the subordination provisions, or to make any change that does not
adversely affect the rights of any Securityholder.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$5,000,000; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $5,000,000; and (vii) a Subsidiary Guaranty
ceasing to be in full force and effect (other than in accordance with its
terms). If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee shall be under no obligation to
exercise any of its rights and powers under the Indenture or the Securities at
the request of any Securityholders, unless such Securityholders shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense. Subject to certain limitations, Holders of a
majority in principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing Default (except a Default in payment of principal or
interest) if it determines that withholding notice is in the interest of the
Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
18. Authentication
<PAGE> 67
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
21. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
22. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written request to
the address set forth in the Indenture and without charge to the Securityholder
a copy of the Indenture which has in it the text of this Security in larger
type.
<PAGE> 68
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) to the Company; or
(2) pursuant to an effective registration
statement under the Securities Act of 1933;
or
(3) inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of
1933) that purchases for its own account or for the account
of a qualified institutional buyer to whom notice is given
that such transfer is being made in reliance on Rule 144A,
in each case pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
(4) outside the United States in an offshore transaction
within the meaning of Regulation S under the Securities Act
in compliance with Rule 904 under the Securities Act of
1933; or
(5) pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate in
the name of any person other than the registered holder thereof;
provided, however, that if box (4) or (5) is checked, the Trustee
may require, prior to registering any such transfer of the
Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration requirements
of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------
Signature
<PAGE> 69
Signature Guarantee:
- ---------------------------- ------------------------
Signature must be guaranteed Signature
- ------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
------------------ -----------------------------------
NOTICE: To be executed by
an executive officer
<PAGE> 70
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Security following officer of Trustee or
Exchange Global Security Global Security such decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 71
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or 4.10 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or 4.10 of the Indenture, state the amount
in principal amount: $
Date: _______________ Your Signature: ______________________
(Sign exactly as your name
appears on the other side
of this Security.)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
NOTICE: Signature(s) must be guaranteed by an institution which is a participant
in the Securities Transfer Agent Medallion Program ("STAMP") or similar program.
<PAGE> 72
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE
EXCHANGE SECURITY]
[*/]
[**/]
CUSIP No.
No. $
11 3/4% Senior Subordinated Notes Due 2006
IMO INDUSTRIES INC., a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of
Dollars on May 1, 2006.
Interest Payment Dates: November 1 and
May 1, commencing November 1, 1996.
Record Dates: October 15 and
April 15.
Additional provisions of this Security are set forth on the other side of
this Security.
Dated:
IMO INDUSTRIES INC.,
by
-----------------------
President
-----------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK &
TRUST COMPANY,
as Trustee,
This is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE> 73
*/ If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".
**/ If the Security is a Private Exchange Security issued in a Private Exchange
to an Initial Purchaser holding an unsold portion of its initial allotment, add
the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the
Assignment Form included in this Exhibit A with the Assignment Form included in
such Exhibit 1.
<PAGE> 74
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
11 3/4% Senior Subordinated Note Due 2006
1. Interest
Imo Industries Inc., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above; provided, however, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
interest will accrue on this Security at a rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. The
Company will pay interest semiannually on November 1 and May 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities at the close
of business on the October 15 or April 15 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company and in accordance with the operational
procedures then in effect between the Trustee and The Depository Trust Company.
The Company will make all payments in respect of a certificated Security
(including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
the Securities may also be made, in the case of a Holder of at least $1,000,000
aggregate principal amount of Securities, by wire transfer to a U.S. dollar
account maintained by the payee with a bank in the United States if such Holder
elects payment by wire transfer by giving written notice to the Trustee or the
Paying Agent to such effect designating such account no later than 30 days
immediately preceding the relevant due date for payment (or such other date as
the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a banking corporation
duly organized and existing under the laws of the State of New York ("Trustee"),
will act as Paying Agent and Registrar. The Company may appoint and change any
Paying Agent, Registrar or co-registrar without notice. The Company or any of
its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of April
15, 1996 ("Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of
<PAGE> 75
the Indenture (the "Act"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the Act
for a statement of those terms.
The Securities are general unsecured obligations of the Company limited
to $155,000,000 aggregate principal amount (subject to Section 2.06 of the
Indenture). The Indenture contains certain covenants that, among other things,
limit (i) the issuance of additional indebtedness by the Company, (ii) the
issuance of indebtedness and preferred stock by certain of the Company's
subsidiaries, (iii) the payment of dividends on capital stock of the Company and
certain of its subsidiaries and the purchase, redemption or retirement of
capital stock or subordinated indebtedness, (iv) investments, (v) certain
transactions with affiliates, (vi) sales of assets, including capital stock of
subsidiaries, and (vii) certain consolidations, mergers and transfers of assets.
The Indenture also prohibits certain restrictions on distributions from certain
subsidiaries. In addition, the Company may be obligated, under certain
circumstances and subject to the limitations set out in the Indenture, to offer
to repurchase Securities at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to May 1, 2001. On and after that date, the Company may redeem
the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date) if redeemed during the 12-month period commencing on or
after the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
<S> <C>
2001. . . . . . . . . . . . . . . . . 106.00
2002. . . . . . . . . . . . . . . . . 104.00
2003. . . . . . . . . . . . . . . . . 102.00
2004. . . . . . . . . . . . . . . . . 100.00
</TABLE>
In addition, at any time prior to May 1, 1999, the Company may redeem
up to $55,000,000 of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering, at any time or from time to time, at a
redemption price (expressed as a percentage of principal amount) of 110% plus
accrued interest to redemption date (subject to the right of Holders of record
on the relevant record date to receive interest due on the related interest
payment date); provided, however, that at least $100,000,000 aggregate principal
amount of the Securities remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. If money sufficient to pay the redemption price of
and accrued interest on all Securities (or portions thereof) to be redeemed on
the redemption date is deposited with the Paying Agent prior to the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions, to cause the Company to repurchase all or any
part of the Securities of such Holder at a repurchase price equal to 101% of the
principal amount of the Securities to be repurchased plus accrued interest to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the related interest payment
date)
<PAGE> 76
as provided in, and subject to the terms of, the Indenture.
8. Guaranties
The Company has agreed that in the event that, after the Issue Date, a
Subsidiary (other than a Specified Subsidiary) guarantees certain indebtedness
of the Company, the Company shall cause such Subsidiary to guarantee the
Obligations on a senior subordinated basis pursuant to the terms of the
Indenture. Any such guaranty with respect to any such Subsidiary shall only be
in effect so long as such Subsidiary shall guarantee such other indebtedness of
the Company.
9. Subordination
The Securities are subordinated to Specified Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Specified Senior Indebtedness of the Company must be paid before the Securities
may be paid. The Company agrees, and each Securityholder by accepting a Security
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in authorized
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall, subject to the terms of the
Indenture, pay the money back to the Company at its written request unless an
abandoned property law designates another Person. After any such payment,
Holders entitled to the money must look only to the Company and not to the
Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount of the Securities and (ii)
any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity,
<PAGE> 77
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make certain
changes in the subordination provisions, or to make any change that does not
adversely affect the rights of any Securityholder.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon acceleration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$5,000,000; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $5,000,000; and (vii) a Subsidiary Guaranty
ceasing to be in full force and effect (other than in accordance with its
terms). If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee shall be under no obligation to
exercise any of its rights and powers under the Indenture or the Securities at
the request of any Securityholders, unless such Securityholders shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense. Subject to certain limitations, Holders of a
majority in principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing Default (except a Default in payment of principal or
interest) if it determines that withholding notice is in the interest of the
Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
18. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
<PAGE> 78
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
21. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
22. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written request to
the address set forth in the Indenture and without charge to the Securityholder
a copy of the Indenture which has in it the text of this Security in larger
type. Requests may be made to:
<PAGE> 79
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The
agent may substitute another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
NOTICE: Signature(s) must be guaranteed by an institution
which is a participant in the Securities Transfer
Agent Medallion Program ("STAMP") or similar program.
<PAGE> 80
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or 4.10 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or 4.10 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
(Signature must be guaranteed by a
member firm of the New York Stock
Exchange or a commercial bank or trust
company)
<PAGE> 81
EXHIBIT B
GUARANTY AGREEMENT, dated as
of , made by
[SUBSIDIARY GUARANTOR] (the
"Guarantor"), the undersigned subsidiary
of Imo Industries Inc. ("the Company"),
in favor of the Holders and the Trustee
(as defined in the Indenture referred to
below).
Reference is made to the Indenture dated as of April 15, 1996 (as
amended, restated, supplemented or modified from time to time, the "Indenture"),
between the Company and IBJ Schroder Bank & Trust Company, as trustee (the
"Trustee").
WHEREAS the Company is a party to the Indenture;
WHEREAS the Company owns directly or indirectly all of or a majority
interest in the Guarantor;
WHEREAS, the Guarantor is a Subsidiary of the Company and is a
guarantor of Indebtedness pursuant to Section 4.04(a) of the Indenture;
WHEREAS, the Company has agreed pursuant to Section 4.15 of the
Indenture to cause the Guarantor to Guarantee the Securities pursuant to the
terms of the Indenture and this Guaranty Agreement;
NOW, THEREFORE, in consideration of the promises thereby, the Guarantor
hereby agrees with and for the benefit of the Holders as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Guaranty Agreement, terms
defined in the Indenture (to the extent not otherwise defined herein) or in the
preamble or recitals hereto are used herein as therein defined.
ARTICLE II
Guaranty
SECTION 2.01. Guaranty. The Guarantor hereby unconditionally and
irrevocably guarantees to each Holder and to the Trustee and its successors and
assigns the following obligations: (a) the full and punctual payment of
principal and interest on the Securities when due, whether at maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Company under the Indenture and the Securities and (b) the full and punctual
performance within applicable grace periods of all other obligations of the
Company under the Indenture (including, without limitation, the compensation and
other payment obligations to the Trustee thereunder) and the Securities (all the
foregoing being hereinafter collectively called the "Obligations"). The
Guarantor further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice or further assent from the Guarantor and that
the Guarantor will remain bound under this Article II notwithstanding any
extension or renewal of any Obligation.
The Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The Guarantor waives notice of any default under the
Securities or the Obligations. The obligations of the Guarantor hereunder shall
not be affected by (a) the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any right or remedy against the Company or any
other Person under the Indenture, the Securities or any other agreement or
otherwise; (b) any extension or renewal of any thereof; (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of the
Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Obligations or any of them;
(e) the failure of any Holder or Trustee to exercise any right or remedy
<PAGE> 82
against any other guarantor of the Obligations; or (f)
except as provided in Section 2.06 of this Guaranty Agreement, any change in the
ownership of the Guarantor.
The Guarantor further agrees that its Guarantee herein constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any security held for payment of the Obligations.
The Subsidiary Guaranty is, to the extent and in the manner set forth
in Article III, subordinated and subject in right of payment to the prior
payment in full in cash or cash equivalents of all Specified Senior Indebtedness
of the Guarantor and is made subject to such provisions of the Indenture.
Except as expressly set forth in Section 8.01(b) of the Indenture and
Sections 2.02 and 2.06 of this Guaranty Agreement, the obligations of the
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
the Guarantor herein shall not be discharged or impaired or otherwise affected
by the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any remedy under the Indenture, the Securities or any other agreement,
by any waiver or modification of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Obligations, or by any other act
or thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of the Guarantor or would otherwise
operate as a discharge of the Guarantor as a matter of law or equity.
The Guarantor further agrees that its Guarantee herein shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal or interest on any Obligation is rescinded or
must otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against the
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
or interest on any Obligation when and as the same shall become due, whether at
maturity, by acceleration, by redemption or otherwise, or to perform or comply
with any other Obligation, the Guarantor hereby promises to and will, upon
receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in
cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
amount of such Obligations, (ii) accrued and unpaid interest on such Obligations
(but only to the extent not prohibited by law) and (iii) all other monetary
Obligations of the Company to the Holders and the Trustee.
The Guarantor agrees that it shall not be entitled to any right of
subrogation in respect of any Obligations guaranteed hereby until payment in
full of all Obligations and all obligations to which the Obligations are
subordinated as provided in Article III. The Guarantor further agrees that, as
between it, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article 6 of the Indenture for the purposes of the Guarantor's
Guarantee herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations guaranteed hereby,
and (y) in the event of any declaration of acceleration of such obligations as
provided in Article 6 of the Indenture, such Obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantor for the
purposes of this Section.
The Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under
<PAGE> 83
this Section.
SECTION 2.02. Limitation on Liability. Any term or provision of this
Guaranty Agreement or the Indenture to the contrary notwithstanding, the
maximum, aggregate amount of the Obligations guaranteed hereunder by the
Guarantor shall not exceed the maximum amount that can be hereby guaranteed
without rendering this Subsidiary Guaranty or the Indenture, as it relates to
the Guarantor, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally (taking into account, for purposes of such determination, the full
amount, without any reduction, of the Guarantor's liability under its guarantee
of Specified Senior Indebtedness).
SECTION 2.03. Successors and Assigns. This Article II shall be binding
upon the Guarantor and its successors and assigns and shall enure to the benefit
of the successors and assigns of the Trustee and the Holders and, in the event
of any transfer or assignment of rights by any Holder or the Trustee, the rights
and privileges conferred upon that party in this Guaranty Agreement or the
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of the
Indenture.
SECTION 2.04. No Waiver. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article II shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article II at law,
in equity, by statute or otherwise.
SECTION 2.05. Modification. No modification, amendment or waiver of any
provision of this Article II, nor the consent to any departure by the Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on the Guarantor in any case shall entitle the Guarantor to any other
or further notice or demand in the same, similar or other circumstances.
SECTION 2.06. Release of Guarantor. Upon (i) the sale (including any
sale pursuant to any exercise of remedies by a holder of Specified Senior
Indebtedness) or other disposition (including by way of consolidation or merger)
of the Guarantor, or the sale or disposition of all or substantially all the
assets the Guarantor (in each case other than to the Company or an Affiliate of
the Company) or (ii) the release or termination of the Guarantor's guarantee of
Indebtedness incurred pursuant to Section 4.04(a) of the Indenture, the
Guarantor shall be deemed released from all obligations under this Article II
without any further action required on the part of the Trustee or any Holder. At
the request of the Company, the Trustee shall execute and deliver an appropriate
instrument evidencing such release.
ARTICLE III
Subordination of the Guaranty
SECTION 3.01. Agreement To Subordinate. The Guarantor agrees, and each
Securityholder by accepting a Security agrees, that the obligations of the
Guarantor hereunder are subordinated in right of payment to the extent and in
the manner provided in this Article III, to the prior payment in full in cash or
cash equivalents of all Specified Senior Indebtedness of the Guarantor and that
the subordination is for the benefit of and enforceable by the holders of such
Specified Senior Indebtedness. The obligations of the Guarantor hereunder shall
in all respects rank pari passu with all other Senior Indebtedness of the
Guarantor and only Specified Senior Indebtedness of the Guarantor (including the
Guarantor's guarantee of Specified Senior Indebtedness of the Company) shall
rank senior to the obligations of the Guarantor hereunder in accordance with the
provisions set forth herein.
<PAGE> 84
SECTION 3.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets of the Guarantor to creditors in an Insolvency or
Liquidation Proceeding relating to the Guarantor or its property:
(1) holders of Specified Senior Indebtedness of the Guarantor
shall be entitled to receive payment in full of such Specified
Senior Indebtedness in cash or cash equivalents before
Securityholders shall be entitled to receive any payment
pursuant to this Subsidiary Guaranty; and
(2) until the Specified Senior Indebtedness of the Guarantor
is paid in full in cash or cash equivalents, any distribution
to which Securityholders would be entitled but for this
Article III shall be made to holders of such Specified Senior
Indebtedness as their interests may appear, except that
Securityholders may receive shares of stock and any debt
securities of the Guarantor that are subordinated to Specified
Senior Indebtedness, and to any debt securities received by
holders of Specified Senior Indebtedness, of the Guarantor to
at least the same extent as the obligations of the Guarantor
hereunder are subordinated to Specified Senior Indebtedness of
the Guarantor; provided that any such debt securities received
by Securityholders shall have a Stated Maturity no earlier
than (and shall not provide for scheduled payments of
principal prior to) the Stated Maturity of such Specified
Senior Indebtedness or any debt securities received by holders
of Specified Senior Indebtedness.
SECTION 3.03. Default on Specified Senior Indebtedness of the
Guarantor. The Guarantor may not make any payment pursuant to this Subsidiary
Guaranty or repurchase, redeem or otherwise retire or defease any Securities or
other Obligations (collectively, "pay its Subsidiary Guaranty") if (i) any
Specified Senior Indebtedness is not paid when due or (ii) any other default on
Specified Senior Indebtedness occurs and the maturity of such Specified Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Specified Senior Indebtedness has been paid in full in
cash or cash equivalents; provided, however, that the Guarantor may pay its
Subsidiary Guaranty without regard to the foregoing if the Guarantor and the
Trustee receive written notice approving such payment from the Representative of
such Specified Senior Indebtedness. The Guarantor may not pay its Subsidiary
Guaranty during the continuance of any Payment Blockage Period after receipt by
the Company and the Trustee of a Payment Notice under Section 10.03 of the
Indenture. Notwithstanding the provisions described in the immediately preceding
sentence (but subject to the provisions contained in the first sentence of this
Section), unless the holders of Specified Senior Indebtedness giving such
Payment Notice or the Representative of such holders shall have accelerated the
maturity of such Specified Senior Indebtedness, the Guarantor may resume
payments pursuant to its obligations hereunder after such Payment Blockage
Period.
SECTION 3.04. Demand for Payment. If a written demand for payment is
made on the Guarantor pursuant to Article II, the Trustee shall promptly notify
the holders of the Specified Senior Indebtedness (or their Representative(s)) of
such demand.
SECTION 3.05. When Distribution Must Be Paid Over. If a distribution is
made to Securityholders that because of this Article III should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Specified Senior Indebtedness and pay it over to them or
their Representative as their interests may appear.
SECTION 3.06. Subrogation. After all Specified Senior Indebtedness of
the Guarantor is paid in full and until the Securities are paid in full, the
Securityholders shall be subrogated to the rights of holders of such Specified
Senior Indebtedness to receive distributions applicable to such Specified Senior
Indebtedness. A distribution made under this Article III to holders of such
Specified Senior Indebtedness which otherwise would have been made to
Securityholders is not, as between the
<PAGE> 85
Guarantor and Securityholders, a payment by the Guarantor on such Specified
Senior Indebtedness.
SECTION 3.07. Relative Rights. This Article III defines the relative
rights of Securityholders and holders of Specified Senior Indebtedness of the
Guarantor. Nothing in this Indenture shall:
(1) impair, as between the Guarantor and Securityholders,
the obligation of the Guarantor, which is absolute and
unconditional, to pay the Obligations to the extent set forth
in Article II; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a default by the Guarantor under
this Subsidiary Guaranty, subject to the rights of holders of
Specified Senior Indebtedness of the Guarantor to receive
distributions otherwise payable to Securityholders.
SECTION 3.08. Subordination May Not Be Impaired by Guarantor. No right
of any holder of Specified Senior Indebtedness of the Guarantor to enforce the
subordination of the obligations of the Guarantor hereunder shall be impaired by
any act or failure to act by the Guarantor or by its failure to comply with this
Guaranty Agreement or the Indenture.
SECTION 3.09. Rights of Trustee and Paying Agent. Notwithstanding
Section 3.03 of this Guaranty Agreement, the Trustee or Paying Agent may
continue to make payments with respect to the Subsidiary Guaranty and shall not
be charged with knowledge of the existence of facts that would prohibit the
making of any such payments unless, not less than two Business Days prior to the
date of such payment, a Trust Officer of the Trustee receives written notice
satisfactory to it that payments may not be made under this Article III. The
Company, the Guarantor, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Specified Senior Indebtedness of the Guarantor may
give the notice; provided, however, that, if an issue of Specified Senior
Indebtedness of the Guarantor has a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capacity may hold
Specified Senior Indebtedness of the Guarantor with the same rights it would
have if it were not Trustee. The Registrar and co-registrar and the Paying Agent
may do the same with like rights. The Trustee shall be entitled to all the
rights set forth in this Article III with respect to any Specified Senior
Indebtedness of the Guarantor which may at any time be held by it, to the same
extent as any other holder of Specified Senior Indebtedness; and nothing in
Article 7 of the Indenture shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article III shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 7.07 of the Indenture.
SECTION 3.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Specified Senior
Indebtedness of the Guarantor, the distribution may be made and the notice given
to their Representative (if any).
SECTION 3.11. Article III Not To Prevent Defaults Under the Indenture
or Limit Right To Demand Payment. The failure to make a payment pursuant to the
Subsidiary Guaranty by reason of any provision in this Article III shall not be
construed as preventing the occurrence of a default under the Indenture. Nothing
in this Article III shall have any effect on the right of the Securityholders or
the Trustee to make a demand for payment on the Guarantor pursuant to Article
II.
SECTION 3.12. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article III, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
3.02 of this Guaranty Agreement are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Securityholders or (iii) upon the Representative for
the holders of Specified Senior Indebtedness of the Guarantor for the purpose of
ascertaining the Persons entitled to participate in such
<PAGE> 86
payment or distribution, the holders of such Specified Senior Indebtedness and
other indebtedness of the Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article III. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right of any Person
as a holder of Specified Senior Indebtedness of the Guarantor to participate
in any payment or distribution pursuant to this Article III, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Specified Senior Indebtedness of the Guarantor
held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article III and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
provisions of Sections 7.01 and 7.02 of the Indenture shall be applicable to
all actions or omissions of actions by the Trustee pursuant to this Article III.
SECTION 3.13. Trustee To Effectuate Subordination. Each Securityholder
by accepting a Security authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Specified Senior Indebtedness of the Guarantor as provided in this Article III
and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 3.14. Trustee Not Fiduciary for Holders of Specified Senior
Indebtedness of the Guarantor. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Specified Senior Indebtedness of the Guarantor
and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of such Specified Senior Indebtedness shall be
entitled by virtue of this Article III or otherwise.
SECTION 3.15. Reliance by Holders of Specified Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any
Specified Senior Indebtedness of the Guarantor, whether such Specified Senior
Indebtedness was created or acquired before or after the issuance of the
Security, to acquire and continue to hold, or to continue to hold, such
Specified Senior Indebtedness and such holder of Specified Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such Specified
Senior Indebtedness.
ARTICLE IV
Miscellaneous
SECTION 4.01. Notices. All notices and other communications pertaining
to this Subsidiary Guaranty shall be in writing and shall be deemed to have been
duly given upon the receipt thereof. Such notices shall be delivered by hand, or
mailed, certified or registered mail with postage prepaid (a) if to the
Guarantor, at the Company's address set forth in the Indenture, and (b) if to
the Holders or the Trustee, as provided in the Indenture.
SECTION 4.02. Parties. Nothing expressed or mentioned in this Guaranty
Agreement is intended or shall be construed to give any Person, firm or
corporation, other than the Holders and the Trustee, any legal or equitable
right, remedy or claim under or in respect of this Subsidiary Guaranty or any
provision herein contained.
SECTION 4.03. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 4.04. Severability Clause. In case any
<PAGE> 87
provision in this Guaranty Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby and such provision shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability.
SECTION 4.05. Waivers, Amendments and Remedies. The failure to insist
in any one or more instances upon strict performance of any of the provisions of
this Guaranty Agreement or to take advantage of any of its rights hereunder
shall not be construed as a waiver of any such provisions or the relinquishment
of any such rights, but the same shall continue and remain in full force and
effect. Except as otherwise expressly limited in this Guaranty Agreement, all
remedies under this Subsidiary Guaranty shall be cumulative and in addition to
every other remedy provided for herein or by law.
SECTION 4.06. Headings. The headings of the Articles and the sections
in this Guaranty Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty
Agreement as of the date first above written.
[SUBSIDIARY GUARANTOR],
By
Name:
Title:
Acknowledged:
IMO INDUSTRIES INC.,
By
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee,
By
Name:
Title:
<PAGE> 1
EXECUTION COPY
IMO INDUSTRIES INC.
$155,000,000
11 3/4% Senior Subordinated Notes Due 2006
REGISTRATION RIGHTS AGREEMENT
April 23, 1996
CS First Boston Corporation
Citicorp Securities, Inc.
Lehman Brothers Inc.
In care of CS First Boston Corporation
As Representative of the Several Initial Purchasers
Park Avenue Plaza
New York, New York 10055
Ladies and Gentlemen:
Imo Industries Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to CS First Boston Corporation, Citicorp Securities, Inc. and
Lehman Brothers (collectively, the "Initial Purchasers"), upon the terms set
forth in a purchase agreement of even date herewith (the "Purchase Agreement"),
$155,000,000 principal amount of its 11 3/4% Senior Subordinated Notes Due 2006
(the "Notes"). The Notes will be issued pursuant to an Indenture, dated as of
April 15, 1996 (the "Indenture"), among the Company and IBJ Schroder Bank &
Trust Company, as trustee (the "Trustee"). As an inducement to the Initial
Purchasers, the Company agrees with the Initial Purchasers, for the benefit of
the holders of the Notes (including, without limitation, the Initial
Purchasers), the Exchange Notes (as defined below) and the Private Exchange
Notes (as defined below) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall, at its cost, prepare
and, not later than 30 days after (or if the 30th day is not a business day, the
first business day thereafter) the Issue Date of the Notes, file with the
Securities and Exchange Commission (the "Commission") a registration statement
(the "Exchange Offer Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to a
proposed offer (the "Registered Exchange Offer") to the Holders of Transfer
Restricted Notes (as defined below), who are not prohibited by any law or policy
of the Commission from participating in the Registered Exchange Offer, to issue
and deliver to such Holders, in exchange for the Notes, a like aggregate
principal amount of debt securities (the "Exchange Notes") of the Company issued
under the Indenture and identical in all material respects to the Notes (except
for the transfer restrictions relating to the Notes) that would be registered
under the Securities Act. The Company shall use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act within 120 days (or if the 120th day is not a business day, the first
business day thereafter) after the Issue Date of the Notes and shall keep the
Exchange Offer Registration Statement effective for not fewer than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Registered Exchange Offer is mailed to the Holders (such period being called the
"Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company will
be entitled to close the Registered Exchange Offer 30 days after the
commencement thereof provided that the Company has accepted all the Notes
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes electing to exchange the Notes
for Exchange Notes (assuming that such Holder is not an affiliate of the Company
within the meaning of the Securities Act, acquires the Exchange Notes in the
ordinary course of such Holder's business and has no arrangements with any
person to participate in the distribution of the Exchange Notes and is not
prohibited by
<PAGE> 2
any law or policy of the Commission from participating in the Registered
Exchange Offer) to trade such Exchange Notes from and after their receipt
without any limitations or restrictions under the registration provisions of the
Securities Act and without material restrictions under the registration or
qualification provisions of the securities laws of the several states of the
United States. In connection with such Registered Exchange Offer, the Company
shall take such further action, including, without limitation, appropriate
filings under state securities laws, as may be necessary to realize the
foregoing objective subject to the proviso of Section 3(h).
The Company acknowledges that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder that is a broker-dealer electing
to exchange Notes, acquired for its own account as a result of market making
activities or other trading activities, for Exchange Notes (an "Exchanging
Dealer"), is required to deliver a prospectus containing the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section, and in
Annex C hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Notes received by such Exchanging
Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser
that elects to sell Exchange Notes acquired in exchange for Notes constituting
any portion of an unsold allotment is required to deliver a prospectus
containing the information required by Items 507 or 508 of Regulation S-K under
the Securities Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes; provided, however, that (i) in the case
where such prospectus and any amendment or supplement thereto must be delivered
by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser
of 180 days and the date on which all Exchanging Dealers and the Initial
Purchasers have sold all Exchange Notes held by them (unless such period is
extended pursuant to Section 3(j) below) and (ii) the Company shall make such
prospectus, and any amendment or supplement thereto, available to any
broker-dealer for use in connection with any resale of any Exchange Notes for a
period not less than 90 days after the consummation of the Registered Exchange
Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Notes acquired by it as part of its initial distribution, the
Company, simultaneously with the delivery of the Exchange Notes pursuant to the
Registered Exchange Offer, shall issue and deliver to such Initial Purchaser
upon the written request of such Initial Purchaser, in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
of debt securities of the Company issued under the Indenture and identical in
all material respects (including the existence of restrictions on transfer under
the Securities Act and the securities laws of the several states of the United
States) to the Notes (the "Private Exchange Notes"). The Notes, the Exchange
Notes and the Private Exchange Notes are herein collectively called the
"Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date notice
thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the
<PAGE> 3
Borough of Manhattan, The City of New York, which may be the Trustee or
an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable law.
As soon as practicable after the close of the Registered Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(ii) deliver to the Trustee for cancellation all the Notes so accepted
for exchange; and
(iii) cause the Trustee to authenticate and promptly deliver Exchange
Notes or Private Exchange Notes, as the case may be, to each Holder
of the Notes, equal in principal amount to the Notes of such Holder
so accepted for exchange.
The Indenture will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
Interest on each Exchange Note and Private Exchange Note issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the date of original issue of the Notes.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, such Holder will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is
not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes and (v) if such Holder is a broker-dealer, that it will receive
Exchange Notes for its own account in exchange for Notes that were acquired as a
result of market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies as to
form in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to
<PAGE> 4
effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii)
the Registered Exchange Offer is not consummated within 150 days of the date of
this Agreement, (iii) any Initial Purchaser so requests with respect to the
Notes (or the Private Exchange Notes) not eligible, by reason of any law or of
any rules, policies or pronouncements of the Commission or other governmental
authority (including any self-regulatory organization), to be exchanged for
Exchange Notes in the Registered Exchange Offer and held by it following
consummation of the Registered Exchange Offer or (iv) any Holder (other than an
Exchanging Dealer) is not eligible, by reason of any law or of any rules,
policies or pronouncements of the Commission or other governmental authority
(including any self-regulatory organization), to participate in the Registered
Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer)
that participates in the Registered Exchange Offer, such Holder does not receive
freely tradeable Exchange Notes, by reason of any law or of any rules, policies
or pronouncements of the Commission or other governmental authority (including
any self-regulatory organization), on the date of the exchange, the Company
shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable (but in
no event more than 30 days after so required or requested pursuant to
this Section 2) file with the Commission and thereafter shall use its
best efforts to cause to be declared effective a registration
statement (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, a "Registration Statement") on
an appropriate form under the Securities Act relating to the offer
and sale of the Transfer Restricted Notes by the Holders thereof from
time to time in accordance with the methods of distribution set forth
in the Shelf Registration Statement and Rule 415 under the Securities
Act (hereinafter, the "Shelf Registration"); provided, however, that
no Holder (other than an Initial Purchaser) shall be entitled to have
the Securities held by it covered by such Shelf Registration
Statement unless such Holder agrees in writing to be bound by all the
provisions of this Agreement applicable to such Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective, in order to permit the
prospectus included therein to be lawfully delivered by the Holders
of the relevant Securities, for a period of three years (or for such
longer period if extended pursuant to Section 3(j) below) from the
date of its effectiveness or such shorter period that will terminate
when all the Securities covered by the Shelf Registration Statement
have been sold pursuant thereto. The Company shall be deemed not to
have used its best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any
action that would result in Holders of Securities covered thereby not
being able to offer and sell such Securities during that period,
unless such action is required by applicable law.
(c) Notwithstanding any other provision of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement
and the related prospectus and any amendment or supplement thereto,
as of the effective date of the Shelf Registration Statement,
amendment or supplement, (i) to comply as to form in all material
respects with the applicable requirements of the Securities Act and
the rules and regulations of the Commission and (ii) not to contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
3. Registration Procedures. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the
<PAGE> 5
Commission, a copy of the Registration Statement and each amendment
thereof and each supplement, if any, to the prospectus included
therein and, in the event that an Initial Purchaser (with respect to
any portion of an unsold allotment from the original offering) is
participating in the Registered Exchange Offer or the Shelf
Registration Statement, shall use its best efforts to reflect in each
such document, when so filed with the Commission, such comments as
such Initial Purchaser reasonably may propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of
Distribution" section of the prospectus forming a part of the
Exchange Offer Registration Statement and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; (iii) if requested by an
Initial Purchaser, include the information required by Items 507 or
508 of Regulation S-K under the Securities Act, as applicable, in the
prospectus forming a part of the Exchange Offer Registration
Statement; (iv) include within the prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which
shall contain a summary statement of the positions taken or policies
made by the staff of the Commission with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of Exchange Notes received by
such broker-dealer in the Registered Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been
publicly disseminated by the staff of the Commission or such
positions or policies, in the reasonable judgment of the Initial
Purchasers based upon advice of counsel (which may be in-house
counsel), represent the prevailing views of the staff of the
Commission; and (v) in the case of a Shelf Registration Statement,
include the names of the Holders, who propose to sell Securities
pursuant to the Shelf Registration Statement, as selling
securityholders.
(b) The Company shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer
from whom the Company has received prior written notice that it will
be a Participating Broker-Dealer in the Registered Exchange Offer
(which notice pursuant to clauses (ii)-(v) hereof shall be
accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus
included therein or for additional information; provided that
the request and the contents of the request need only be
disclosed to the Initial Purchasers and one counsel appointed
by and on behalf of the Holders as described in Section 4;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such
purpose; and
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus
in order
<PAGE> 6
that the Registration Statement or the prospectus do not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least
one copy of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and,
if the Holder so requests in writing, all exhibits thereto (including
those, if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each
Initial Purchaser, and to any other Holder who so requests, without
charge, at least one copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if any Initial Purchaser or any such
Holder requests, all exhibits thereto (including those incorporated by
reference).
(f) The Company shall deliver to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, as many
copies of the prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such person may reasonably request. The Company
consents, subject to the provisions of this Agreement, to the use of
the prospectus or any amendment or supplement thereto by each of the
selling Holders of the Securities in connection with the offering and
sale of the Securities covered by the prospectus, or any amendment or
supplement thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to each Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other
persons required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such persons may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the
use of the prospectus or any amendment or supplement thereto by any
Initial Purchaser, if necessary, any Participating Broker-Dealer and
such other persons required to deliver a prospectus following the
Registered Exchange Offer in connection with the offering and sale of
the Exchange Notes covered by the prospectus, or any amendment or
supplement thereto, included in such Exchange Offer Registration
Statement.
(h) Prior to any public offering of the Securities pursuant to any
Registration Statement, the Company shall register or qualify or
cooperate with the Holders of the Securities included therein and their
respective counsel in connection with the registration or qualification
of the Securities for offer and sale under the securities or "blue sky"
laws of such states of the United States as any Holder of the
Securities reasonably requests in writing and do any and all other acts
or things necessary or advisable to enable the offer and sale in such
jurisdictions of the Securities covered by such Registration Statement;
provided, however, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it is not
then so qualified or (ii) take any action which would subject it to
general service of process or to taxation in any jurisdiction where it
is not then so subject.
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Registration
<PAGE> 7
Statement free of any restrictive legends and in such denominations and
registered in such names as the Holders may request a reasonable period
of time prior to sales of the Securities pursuant to such Registration
Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the
Company is required to maintain an effective Registration Statement,
the Company shall promptly prepare and file a post-effective amendment
to the Registration Statement or a supplement to the related prospectus
and any other required document so that, as thereafter delivered to
Holders of the Notes or purchasers of Securities, the prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. If the Company notifies the Initial Purchasers,
the Holders of the Securities and any known Participating Broker-Dealer
in accordance with paragraphs (ii) through (v) of Section 3(b) above to
suspend the use of the prospectus until the requisite changes to the
prospectus have been made, then the Initial Purchasers, the Holders of
the Securities and any such Participating Broker-Dealers shall suspend
use of such prospectus, and the period of effectiveness of the Shelf
Registration Statement provided for in Section 2(b) above and the
Exchange Offer Registration Statement provided for in Section 1 above
shall each be extended by the number of days from and including the
date of the giving of such notice to and including the date when the
Initial Purchasers, the Holders of the Securities and any known
Participating Broker-Dealer shall have received such amended or
supplemented prospectus pursuant to this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Notes, the
Exchange Notes or the Private Exchange Notes, as the case may be, and
provide the applicable trustee with printed certificates for the Notes,
the Exchange Notes or the Private Exchange Notes, as the case may be,
in a form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90
days, if such period is a fiscal year) beginning with the first month
of the Company's first fiscal quarter commencing after the effective
date of the Registration Statement, which statement shall cover such
12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and
containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of the
Securities as the Company may from time to time reasonably require for
inclusion in the Shelf Registration Statement, and the Company may
exclude from such registration the Securities of any Holder that
unreasonably fails to furnish such information within a reasonable time
after receiving such request.
(o) The Company shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all
such other action, if any, as any Holder of the Securities shall
<PAGE> 8
reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i) make
reasonably available for inspection by the Holders of the Securities,
any underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent
retained by the Holders of the Securities or any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and (ii) cause the Company's officers,
directors, employees, accountants and auditors to supply all relevant
information reasonably requested by the Holders of the Securities or
any such underwriter, attorney, accountant or agent in connection with
the Shelf Registration Statement, in each case, as shall be reasonably
necessary, in the judgment of the Holder or any such underwriter,
attorney, accountant or agent referred to in this paragraph, to conduct
a reasonable investigation within the meaning of Section 11 of the
Securities Act; provided, however, that the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial
Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in
Section 4 hereof.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall cause (i) its
counsel to deliver an opinion and updates thereof relating to the
Securities in customary form (including customary exceptions and
limitations) addressed to such Holders and the managing underwriters,
if any, thereof and dated, in the case of the initial opinion, the
effective date of such Shelf Registration Statement (it being agreed
that the matters to be covered by such opinion shall include, without
limitation, the due incorporation and good standing of the Company and
its subsidiaries; the qualification of the Company and its subsidiaries
to transact business as foreign corporations; the due authorization,
execution and delivery by the Company of the relevant agreement of the
type referred to in Section 3(o) hereof; the due authorization,
execution, authentication and issuance, and the validity and
enforceability, of the applicable Securities; the absence of material
legal or governmental proceedings involving the Company; the absence of
governmental approvals required to be obtained in connection with the
Shelf Registration Statement, the offering and sale of the applicable
Securities, or any agreement of the type referred to in Section 3(o)
hereof; the compliance as to form of such Shelf Registration Statement
and any documents filed with the Commission and incorporated by
reference therein and of the Indenture with the requirements of the
Securities Act and the Trust Indenture Act, respectively; and, as of
the date of the opinion and as of the effective date of the Shelf
Registration Statement or most recent post-effective amendment thereto,
as the case may be, the absence from such Shelf Registration Statement
and the prospectus included therein, as then amended or supplemented,
and from any documents filed with the Commission and incorporated by
reference therein of an untrue statement of a material fact or the
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case
of any such documents, in the light of the circumstances existing at
the time that such documents were filed with the Commission under the
Exchange Act); (ii) its officers to execute and deliver all customary
documents and certificates and updates thereof as reasonably requested
by any underwriters of the applicable Securities and (iii) its
independent public accountants to provide to the selling Holders of the
applicable Securities and any underwriter therefor a comfort letter in
customary form and covering matters of the type customarily covered in
comfort letters in connection with primary underwritten offerings,
subject to receipt of appropriate documentation as contemplated, and
only if permitted, by Statement of Auditing Standards No. 72.
<PAGE> 9
(r) In the case of the Registered Exchange Offer, if requested by any
Initial Purchaser or any known Participating Broker-Dealer, the Company
shall cause (i) its counsel to deliver to such Initial Purchaser or
such Participating Broker-Dealer a signed opinion in the form set forth
in Section 6(d) of the Purchase Agreement with such changes as are
customary in connection with the preparation of a Registration
Statement and (ii) its independent public accountants to deliver to
such Initial Purchaser or such Participating Broker-Dealer a comfort
letter, in customary form, meeting the requirements as to the substance
thereof as set forth in Section 6(a) of the Purchase Agreement, with
appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Company (or
to such other Person as directed by the Company) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the
Company shall mark, or cause to be marked, on the Notes so exchanged
that such Notes are being cancelled in exchange for the Exchange Notes
or the Private Exchange Notes, as the case may be; and in no event
shall the Notes be marked as paid or otherwise satisfied.
(t) The Company will use its best efforts to cause the Securities
covered by a Registration Statement to be rated (or to have any
existing rating confirmed) with the appropriate rating agencies, if so
requested by Holders of a majority in aggregate principal amount of
Securities covered by such Registration Statement, or by the managing
underwriters, if any.
(u) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of
the National Association of Securities Dealers, Inc. ("NASD")) thereof,
whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Company shall assist such broker-dealer in complying
with the requirements of such Rules and By-Laws, including, without
limitation, by (A) if such Rules or By-Laws, including Schedule E
thereto, shall so require, engaging a "qualified independent
underwriter" (as defined in such Schedule) to participate in the
preparation of the Registration Statement relating to such Securities,
to exercise usual standards of due diligence in respect thereto and, if
any portion of the offering contemplated by such Registration Statement
is an underwritten offering or is made through a placement or sales
agent, to recommend the yield of such Securities, (B) indemnifying any
such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof and (C)
providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the
Rules of Fair Practice of the NASD.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof (including the reasonable fees and expenses of Cravath, Swaine
& Moore, counsel for the Initial Purchasers, incurred in connection with the
Registered Exchange Offer), whether or not the Registered Exchange Offer or a
Shelf Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear or reimburse the Holders of the Securities covered
thereby for the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith.
<PAGE> 10
5. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder of the Securities, any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons being referred to
collectively as the "Indemnified Parties") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto, or arise out of, or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse, as incurred, the Indemnified Parties for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action in respect thereof;
provided, however, that the Company shall not be liable in any such case to the
extent that such loss, claim, damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in a Registration Statement or prospectus or in any amendment or supplement
thereto or in any preliminary prospectus relating to a Shelf Registration in
reliance upon and in conformity with written information pertaining to such
Holder and furnished to the Company by or on behalf of such Holder specifically
for inclusion therein; provided further, however, that this indemnity agreement
will be in addition to any liability which the Company may otherwise have to
such Indemnified Party. The Company shall also indemnify underwriters, selling
brokers, dealer-managers and similar securities industry professionals
participating in the distribution (in each case as described in the Registration
Statement), their officers and directors and each person who controls such
persons within the meaning of the Securities Act or the Exchange Act to the same
extent as provided above with respect to the indemnification of the Holders of
the Securities if requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act from
and against any losses, claims, damages or liabilities or any actions in respect
thereof, to which the Company or any such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein;
and, subject to the limitation set forth immediately preceding this clause with
respect to written information pertaining to such Holder, shall reimburse, as
incurred, the Company for any legal or other expenses reasonably incurred by the
Company or any such controlling person in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section 5
of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party
<PAGE> 11
under this Section 5, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent (which consent shall not be
unreasonably withheld) of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof the indemnifying party will not
be liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Notes,
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Holder or such other indemnified person, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding any other provision of this
Section 5(d), the Holders of the Securities shall not be required to contribute
any amount in excess of the amount by which the net proceeds received by such
Holders from the sale of the Securities pursuant to a Registration Statement
exceeds the amount of damages which such Holders have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this paragraph (d), each person, if any, who controls such indemnified party
within the meaning of the Securities Act or the Exchange Act shall have the same
rights to contribution as such indemnified party and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act shall have the same rights to contribution as the Company.
<PAGE> 12
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a) Additional
interest (the "Additional Interest") with respect to the Securities shall be
assessed as follows if any of the following events occur (each such event in
clauses (i) through (iii) below a "Registration Default":
(i) If by May 29, 1996, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the
Commission;
(ii) If by September 26, 1996, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof, the Shelf Registration
Statement is declared effective by the Commission; or
(iii) If after either the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective (A) such
Registration Statement thereafter ceases to be effective; or (B) such
Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of
Transfer Restricted Notes during the periods specified in this
Agreement because either (1) any event occurs as a result of which the
related prospectus forming part of such Registration Statement would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading or (2) it
shall be necessary to amend such Registration Statement, or supplement
the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
Additional Interest shall accrue on the Notes over and above the
interest set forth in the title of the Notes from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all such Registration Defaults have been cured, at a rate of 0.50% per
annum.
(b) A Registration Default referred to in Section 6(a)(iii)(B) shall be
deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
provided, however, that in any case, if such Registration Default occurs for a
continuous period in excess of 45 days, Additional Interest shall be payable in
accordance with the above paragraph from the day following such 45 day period
until the date on which such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (a)(i),
(a)(ii) or (a)(iii) of Section 6 above will be payable in cash on the regular
interest payment dates with respect to the Notes. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Notes" means each
<PAGE> 13
Security until (i) the date on which such Transfer Restricted Note has been
exchanged by a person other than a broker-dealer for a freely transferrable
Exchange Note in the Registered Exchange Offer, (ii) following the exchange by a
broker-dealer in the Registered Exchange Offer of a Transfer Restricted Note for
an Exchange Note, the date on which such Exchange Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Transfer Restricted Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Transfer Restricted Note
is distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Company shall use its best efforts to file
the reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time the Company is not required to file
such reports, it will, upon the request of any Holder of Transfer Restricted
Notes, make publicly available other information so long as necessary to permit
sales of their securities pursuant to Rules 144 and 144A. The Company covenants
that it will take such further action as any Holder of Transfer Restricted Notes
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Transfer Restricted Notes without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Company will provide a
copy of this Agreement to prospective purchasers of Notes identified to the
Company by the Initial Purchasers upon request. Upon the request of any Holder
of Transfer Restricted Notes, the Company shall deliver to such Holder a written
statement as to whether it has complied with the requirements set forth in the
first two sentences of this Section 7. Notwithstanding the foregoing, nothing in
this Section 7 shall be deemed to require the Company to register any of its
securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
administer the offering ("Managing Underwriters") will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Notes to be included in such offering.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address given
by such Holder to the Company in accordance with the provisions of this
Section 9(b), which address initially is, with respect to each Holder,
the address of such Holder to which confirmation of the sale of the
Notes to such Holder was first sent by the Initial Purchasers, with a
copy in like manner to you as follows:
<PAGE> 14
CS First Boston Corporation
Park Avenue Plaza
New York, NY 10055
Fax No.: (212) 318-0532
Attention: Transactions Advisory Group
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.: (212) 474-3700
Attention: Kris F. Heinzelman
(2) if to the Initial Purchasers, at the
addresses specified in Section 9(b)(1);
(3) if to the Company, at its address as follows:
Imo Industries Inc.
1009 Lenox Drive,
Building Four West
Lawrenceville, NJ 08648-0550
Fax No: (609) 896-7688
Attention: Thomas J. Bird
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Fax No: (212) 310-8007
Attention: Ronald F. Daitz
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged or transmission confirmed by recipient's facsimile machine, if
sent by facsimile transmission; and on the day delivered, if sent by overnight
air courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
<PAGE> 15
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the several Initial Purchasers and the Company in accordance with its
terms.
Very truly yours,
IMO INDUSTRIES INC.,
By: /s/ Robert A. Derr II
-----------------------
Name: Robert A. Derr II
Title: Vice President
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
CS FIRST BOSTON CORPORATION
CITICORP SECURITIES, INC.
LEHMAN BROTHERS INC.
by: CS FIRST BOSTON CORPORATION
By: /s/ Sean P. Madden
----------------------------
Name: Sean P. Madden
Title: Attorney-In-Fact
<PAGE> 16
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
<PAGE> 17
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
See "Plan of Distribution."
<PAGE> 18
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.*/
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- ---------------
*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover of the Exchange Offer Prospectus.
<PAGE> 19
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________
Address: _________________________________________
_________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
<PAGE> 1
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
DATED AS OF APRIL 29, 1996
AMONG
IMO INDUSTRIES INC.,
AS BORROWER
VARO INC.,
AS GUARANTOR
WARREN PUMPS INC.,
AS GUARANTOR
AND
THE INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS LENDERS
THE INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS ISSUING BANKS
AND
CITICORP USA, INC.,
AS AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS............................. 1
1.01. Certain Defined Terms................................................ 1
1.02. Computation of Time Periods.......................................... 39
1.03. Accounting Terms..................................................... 40
1.04. Other Definitional Provisions........................................ 40
1.05. Other Terms.......................................................... 40
ARTICLE II
AMOUNTS AND TERMS OF LOANS...................... 40
2.01. The Term Loans....................................................... 40
2.02. Revolving Credit Facility............................................ 43
2.03. Swing Loans.......................................................... 45
2.04. Letters of Credit.................................................... 48
2.05. Promise to Repay; Evidence of Indebtedness........................... 56
2.06. Authorized Officers and Agents....................................... 56
ARTICLE III
PAYMENTS AND PREPAYMENTS....................... 57
3.01. Prepayments; Reductions in Commitments............................... 57
3.02. Payments............................................................. 61
3.03. Taxes................................................................ 65
3.04. Increased Capital.................................................... 70
3.05. Cash Management...................................................... 71
ARTICLE IV
INTEREST AND FEES.......................... 72
4.01. Interest on the Loans and Other Obligations.......................... 72
4.02. Special Provisions Governing Eurodollar Rate
Loans................................................................ 75
4.03. Fees................................................................. 79
ARTICLE V
CONDITIONS TO LOANS AND LETTERS OF CREDIT.............. 80
5.01. Conditions Precedent to the Initial Loans and
Letters of Credit.................................................... 80
5.02. Conditions Precedent to All Subsequent
Revolving Loans, Swing Loans and Letters of
Credit............................................................... 83
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES.................... 84
6.01. Representations and Warranties of the Borrower....................... 84
ARTICLE VII
REPORTING COVENANTS......................... 98
7.01. Financial Statements................................................. 98
7.02. Events of Default; Changes in Credit Ratings......................... 100
7.03. Lawsuits............................................................. 100
7.04. Insurance............................................................ 101
7.05. ERISA Notices........................................................ 101
7.06. Environmental Notices................................................ 103
7.07. Labor Matters........................................................ 104
7.08. Government Contracts................................................. 104
7.09. Public Filings and Reports........................................... 104
7.10. Subordinated Notes................................................... 104
7.11. Other Information.................................................... 104
ARTICLE VIII
AFFIRMATIVE COVENANTS........................ 105
8.01. Corporate Existence, Etc............................................. 105
8.02. Corporate Powers; Conduct of Business, Etc........................... 105
8.03. Compliance with Laws, Etc............................................ 105
8.04. Payment of Taxes and Claims; Tax Consolidation....................... 105
8.05. Insurance............................................................ 106
8.06. Inspection of Property; Books and Records;
Discussions.......................................................... 107
8.07. Insurance and Condemnation Proceeds.................................. 107
8.08. ERISA Compliance..................................................... 108
8.09. Foreign Employee Benefit Plan Compliance............................. 108
8.10. Establishment of Lockbox Accounts; Maintenance
of Property.......................................................... 109
8.11. Condemnation......................................................... 109
8.12. Future Liens on Real Property........................................ 109
8.13. Landlord Waivers..................................................... 110
8.14. Environmental Compliance............................................. 110
8.15. Government Contracts................................................. 110
8.16. Post-Closing Matters................................................. 111
ARTICLE IX
NEGATIVE COVENANTS.......................... 111
9.01. Indebtedness......................................................... 111
9.02. Sales of Assets...................................................... 113
9.03. Liens................................................................ 115
9.04. Investments.......................................................... 116
9.05. Accommodation Obligations............................................ 118
9.06. Restricted Junior Payments........................................... 119
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
9.07. Conduct of Business; Subsidiaries;
Acquisitions........................................................ 119
9.08. Transactions with Shareholders and Affiliates....................... 120
9.09. Restriction on Fundamental Changes.................................. 120
9.10. Sales and Leasebacks................................................ 120
9.11. Margin Regulations; Securities Laws................................. 121
9.12. ERISA............................................................... 121
9.13. Issuance of Capital Stock........................................... 122
9.14. Constituent Documents............................................... 122
9.15. Fiscal Year......................................................... 122
9.16. Cancellation of Debt; Prepayment; Certain
Amendments.......................................................... 122
9.17. Cash Management..................................................... 122
9.18. Environmental Matters............................................... 123
9.19. Unrestricted Subsidiary............................................. 123
9.20. No New Restrictions on Subsidiary Dividends......................... 123
ARTICLE X
FINANCIAL COVENANTS........................ 123
10.01. Minimum Consolidated Net Worth...................................... 123
10.02. Minimum Fixed Charge Coverage Ratio................................. 125
10.03. Minimum Interest Coverage Ratio..................................... 125
10.04. Maximum Capital Expenditures........................................ 126
10.05. Maximum Permitted Senior Debt Ratio................................. 127
10.06. Maximum Permitted Total Debt Ratio.................................. 128
ARTICLE XI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES............... 128
11.01. Events of Default................................................... 128
11.02. Rights and Remedies................................................. 132
11.03. The Cash Collateral Account......................................... 133
ARTICLE XII
GUARANTIES............................. 135
12.01. Guaranties.......................................................... 135
12.02. Authorization; Other Agreements..................................... 136
12.03. Guaranty Absolute and Unconditional................................. 138
12.04. Waivers............................................................. 139
12.05. Reliance............................................................ 139
12.06. Waiver of Subrogation and Contribution Rights....................... 139
12.07. Subordination....................................................... 140
12.08. Default; Remedies................................................... 141
12.09. Irrevocability...................................................... 141
12.10. Limitation on Guaranteed Amounts.................................... 142
12.11. Certain California Law Matters...................................... 142
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XIII
THE AGENT............................. 143
13.01. Appointment......................................................... 143
13.02. Nature of Duties.................................................... 144
13.03. Rights, Exculpation, Etc............................................ 144
13.04. Reliance............................................................ 145
13.05. Indemnification..................................................... 145
13.06. Citicorp Individually............................................... 146
13.07. Successor Agent; Resignation of Agent............................... 146
13.08. Relations Among Lenders............................................. 147
13.09. Concerning the Collateral and the Loan
Documents........................................................... 147
ARTICLE XIV
MISCELLANEOUS........................... 150
14.01. Assignments......................................................... 150
14.02. Expenses............................................................ 154
14.03. Indemnity........................................................... 155
14.04. Change in Accounting Principles..................................... 156
14.05. Setoff.............................................................. 157
14.06. Ratable Sharing..................................................... 157
14.07. Amendments and Waivers.............................................. 158
14.08. Notices............................................................. 159
14.09. Survival of Warranties and Agreements............................... 160
14.10. Failure or Indulgence Not Waiver; Remedies
Cumulative.......................................................... 160
14.11. Marshalling; Payments Set Aside..................................... 160
14.12. Severability........................................................ 160
14.13. Headings............................................................ 161
14.14. Governing Law....................................................... 161
14.15. Limitation of Liability............................................. 161
14.16. Successors and Assigns.............................................. 161
14.17. Certain Consents and Waivers........................................ 161
14.18. Counterparts; Effectiveness; Inconsistencies........................ 162
14.19. Limitation on Agreements............................................ 163
14.20. Confidentiality..................................................... 163
14.21. Entire Agreement.................................................... 163
</TABLE>
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<PAGE> 6
EXHIBITS
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Lockbox Agreement
Exhibit C -- Form of Notice of Borrowing
Exhibit D -- Form of Notice of Continuation/Conversion
Exhibit E -- List of Closing Documents
Exhibit F -- Form of Officer's Certificate to Accompany Reports
<PAGE> 7
SCHEDULES
Schedule 1.01.1 -- Lender's Commitments as of the Closing Date
Schedule 1.01.3 -- Permitted Existing Accommodation Obligations
Schedule 1.01.4 -- Permitted Existing Indebtedness
Schedule 1.01.5 -- Permitted Existing Investments
Schedule 1.01.6 -- Permitted Existing Liens
Schedule 1.01.10 -- Permitted Existing Surety Bonds
Schedule 1.01.13 -- Non-Operating Assets
Schedule 2.04-K -- Existing Letters of Credit
Schedule 6.01-C -- Authorized, Issued and Outstanding Capital Stock;
Subsidiaries
Schedule 6.01-D -- Conflicts with Contractual Obligations and
Requirements of Laws
Schedule 6.01-E -- Governmental Consents
Schedule 6.01-I -- Litigation; Adverse Effects
Schedule 6.01-O -- Environmental Matters
Schedule 6.01-P -- ERISA Matters
Schedule 6.01-R -- Labor Matters
Schedule 6.01-U -- Patents, Trademarks and Permits; Government
Approvals
Schedule 6.01-V -- Assets and Properties
Schedule 6.01-W -- Insurance
Schedule 6.01-Y -- Transactions with Affiliates
Schedule 6.01-AA -- Lockbox Banks; Bank Accounts
Schedule 6.01-BB -- Government Contracts
Schedule 9.09 -- Fundamental Changes
Schedule 9.18 -- Bank Accounts
<PAGE> 8
EXECUTION COPY
CREDIT AGREEMENT
This Credit Agreement dated as of April 29, 1996 (as amended,
supplemented or otherwise modified from time to time, this "Agreement") among
Imo Industries Inc., a Delaware corporation (with its successors and permitted
assigns, the "Borrower"), Varo Inc., a Texas corporation and a direct wholly
owned subsidiary of the Borrower (with its successors and permitted assigns,
"Varo"), Warren Pumps Inc., a Delaware corporation and a direct wholly owned
subsidiary of the Borrower (with its successors and permitted assigns, "Warren
Pumps"; together with Varo, the "Guarantors"), the institutions from time to
time party hereto as Lenders (whether by execution of this Agreement or an
Assignment and Acceptance), the institutions from time to time party hereto as
Issuing Banks (whether by execution of this Agreement or an Assignment and
Acceptance), and Citicorp USA, Inc., a Delaware corporation, in its capacity as
agent and collateral agent for the Lenders and the Issuing Banks (with its
successors in such capacity, the "Agent").
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms. In addition to the terms defined above,
the following terms used herein shall have the following meanings, applicable
both to the singular and the plural forms of the terms defined:
"A Term Loan" is defined in Section 2.01(a).
"A Term Loan Commitment" means, with respect to any Lender, the
obligation of such Lender to make A Term Loans pursuant to the terms and
conditions hereof, and which shall not exceed the principal amount set forth
opposite such Lender's name under the heading "A Term Loan Commitment" on
Schedule 1.01.1 or the signature page of the Assignment and Acceptance by which
it became a Lender, as modified from time to time pursuant to the terms hereof
or to give effect to any applicable Assignment and Acceptance, and "A Term Loan
Commitments" means the aggregate principal amount of the A Term Loan Commitments
of all the A Term Loan Lenders, the maximum aggregate principal amount of which
shall not exceed $25,000,000, as reduced from time to time pursuant to the terms
hereof.
"A Term Loan Lender" is defined in Section 2.01(a).
<PAGE> 9
"A Term Loan Notes" means notes evidencing the Borrower's obligation to
repay the A Term Loans.
"A Term Loan Pro Rata Share" means, with respect to any Lender, (i)
prior to the Closing Date, the percentage obtained by dividing (A) such Lender's
A Term Loan Commitment at such time by (B) the aggregate amount of all A Term
Loan Commitments at such time; and (ii) on and after the Closing Date, the
percentage obtained by dividing (x) the outstanding principal amount of such
Lender's A Term Loans by (y) the aggregate outstanding principal amount of all A
Term Loans.
"Accommodation Obligation", means any Contractual Obligation,
contingent or otherwise, of one Person with respect to any Indebtedness,
obligation or liability of another, if the primary purpose or intent thereof by
the Person incurring the Accommodation Obligation is to provide assurance to the
obligee of such Indebtedness, obligation or liability of another that such
Indebtedness, obligation or liability shall be paid or discharged, or that any
agreements relating thereto shall be complied with, or that the holders thereof
shall be protected (in whole or in part) against loss in respect thereof.
Accommodation Obligations of a Person include, without limitation, (a) the
direct or indirect guarantee, endorsement (other than for collection or deposit
in the ordinary course of business), co- making, discounting with recourse or
sale with recourse by such Person of an obligation of another Person, and (b)
any liability of such Person for an obligation of another Person through any
agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of a loan, advance,
stock purchase, capital contribution or otherwise), (ii) to maintain the
solvency or any balance sheet item, level of income or financial condition of
another Person, (iii) to make take-or-pay or similar payments, if required,
regardless of non-performance by any other party or parties to an agreement,
(iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of such obligation or to assure the holder of such obligation against
loss, or (v) to supply funds to or in any other manner invest in such other
Person (including, without limitation, to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Accommodation Obligation
shall be only the amount of the primary obligation so guaranteed or otherwise
supported.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more
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<PAGE> 10
intermediaries controls, or is controlled by, or is under common control with,
such specified Person, (ii) which beneficially owns or holds 5% or more of any
class of the Voting Stock or other equity interest of such specified Person or
(iii) of which 5% or more of the Voting Stock or other equity interest is
beneficially owned or held by such specified Person or a Subsidiary of such
specified Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person directly or indirectly, whether through the ownership of
Voting Stock, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent" is defined in the preamble hereto and shall include any
successor Agent appointed pursuant to Section 13.07.
"Agent's Account" means the Agent's account number 3885 8061 (re:
Citicorp USA, Inc. Concentration Account) maintained at the office of Citibank
at 399 Park Avenue, New York, New York 10043, or such other deposit account as
the Agent may from time to time specify in writing to the Borrower and the
Lenders.
"Alternative Currency" means lawful currency other than Dollars which
is freely convertible into Dollars.
"Applicable Base Rate Margin" means as of any date (i) with respect to
the Revolving Credit Obligations and the A Term Loans, one percent (1.00%) per
annum and (ii) with respect to the B Term Loans and the C Term Loans, one and
one-half percent (1.50%) per annum; provided that (A) on the 45th day after the
end of any fiscal quarter of any Fiscal Year ending after both the first
anniversary of the Closing Date and the repayment of at least $35,000,000 in
principal amount of the Term Loans from the payment of scheduled installments of
the B Term Loans and Net Cash Proceeds arising from the sale of assets, the
Applicable Base Rate Margin for Revolving Credit Obligations and the A Term
Loans shall be the rate per annum on the pricing grid set forth below determined
by reference to the Interest Coverage Ratio for such fiscal quarter and (B) the
Applicable Base Rate Margin for B Term Loans for any date shall be increased by
(x) one quarter of one percent (0.25%) per annum on any date from and after
April 30, 1997 and (y) an additional one quarter of one percent (0.25%) per
annum on any date from and after the first day of each three-month period ending
after April 30, 1997, not to exceed six such increases:
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<PAGE> 11
PRICING GRID
<TABLE>
<CAPTION>
Applicable
Interest Coverage Ratio Base Rate Margin
----------------------- ----------------
<S> <C> <C>
less than 2.00 to 1 1.25%
greater than or equal to 2.00 to 1 1.00%
but less than 2.50 to 1
greater than or equal to 2.50 to 1 0.75%
but less than 3.00 to 1
greater than or equal to 3.00 to 1 0.50%
</TABLE>
"Applicable Eurodollar Rate Margin" means as of any date (i) with
respect to the Revolving Credit Obligations and the A Term Loans, two and
one-half percent (2.50%) per annum and (ii) with respect to the B Term Loans and
the C Term Loans, three percent (3.00%) per annum; provided that (A) on the 45th
day after the end of any fiscal quarter of any Fiscal Year ending after both the
first anniversary of the Closing Date and the repayment of at least $35,000,000
in principal amount of the Term Loans from the payment of scheduled installments
of the B Term Loans and Net Cash Proceeds arising from the sale of assets, the
Applicable Eurodollar Rate Margin for Revolving Credit Obligations and the A
Term Loans shall be the rate per annum on the pricing grid set forth below
determined by reference to the Interest Coverage Ratio for such fiscal quarter
and (B) the Applicable Eurodollar Rate Margin for B Term Loans for any date
shall be increased by (x) one quarter of one percent (0.25%) per annum on any
date from and after April 30, 1997 and (y) an additional one quarter of one
percent (0.25%) per annum on any date from and after the first day of each
three-month period ending after April 30, 1997, not to exceed six such
increases:
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<PAGE> 12
PRICING GRID
<TABLE>
<CAPTION>
Applicable
Interest Coverage Ratio Eurodollar Rate Margin
----------------------- ----------------------
<S> <C> <C>
less than 2.00 to 1 2.75%
greater than or equal to 2.00 to 1 2.50%
but less than 2.50 to 1
greater than or equal to 2.50 to 1 2.25%
but less than 3.00 to 1
greater than or equal to 3.00 to 1 2.00%
</TABLE>
"Applicable Lending Office" means, with respect to a particular Lender,
its Eurodollar Lending Office in respect of provisions relating to Eurodollar
Rate Loans and its Domestic Lending Office in respect of provisions relating to
Base Rate Loans.
"Assignment and Acceptance" means an Assignment and Acceptance in
substantially the form of Exhibit A attached hereto and made a part hereof (with
blanks appropriately completed) delivered to the Agent in connection with an
assignment of a Lender's interest hereunder in accordance with the provisions of
Section 14.01.
"Assignment of Claims Act" has the meaning ascribed to such term in
Section 8.15.
"Availability Reserves" means, at any time, (x) an amount (not less
than zero) equal to twenty-five percent (25%) of the aggregate amount of all
Unsupported Surety Bonds then outstanding less $2,500,000, plus (y) as of ten
(10) days after the date of written notice of any determination thereof to the
Borrower by the Agent, such amounts as the Agent, in the exercise of its sole
discretion exercised in a commercially reasonable manner, may from time to time
establish against the Revolving Credit Availability in order either (i) to
preserve the value of, or the Agent's Lien on, the Collateral or (ii) to ensure
the availability of cash sufficient to meet certain future liabilities of the
Borrower.
"B Term Loan" is defined in Section 2.01(b).
"B Term Loan Commitment" means, with respect to any Lender, the
obligation of such Lender to make B Term Loans pursuant to the terms and
conditions hereof, and which shall not exceed the principal amount set forth
opposite such Lender's name under the heading "B Term Loan Commitment" on
Schedule 1.01.1 or
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<PAGE> 13
the signature page of the Assignment and Acceptance by which it became a Lender,
as modified from time to time pursuant to the terms hereof or to give effect to
any applicable Assignment and Acceptance, and "B Term Loan Commitments" means
the aggregate principal amount of the B Term Loan Commitments of all the B Term
Loan Lenders, the maximum aggregate principal amount of which shall not exceed
$35,000,000, as reduced from time to time pursuant to the terms hereof.
"B Term Loan Lender" is defined in Section 2.01(b).
"B Term Loan Notes" means notes evidencing the Borrower's Obligation to
repay the B Term Loans.
"B Term Loan Pro Rata Share" means, with respect to any Lender, (i)
prior to the Closing Date, the percentage obtained by dividing (A) such Lender's
B Term Loan Commitment at such time by (B) the aggregate amount of all B Term
Loan Commitments at such time; and (ii) on and after the Closing Date, the
percentage obtained by dividing (x) the outstanding principal amount of such
Lender's B Term Loans by (y) the aggregate outstanding principal amount of all B
Term Loans.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
SectionSection 101 et seq.), as amended from time to time, and any successor
statute.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time, which rate per annum shall at all
times be equal to the highest of:
(i) the rate of interest announced publicly by Citibank in New York,
New York from time to time, as Citibank's base rate; and
(ii) the sum (adjusted to the nearest one quarter of one percent
(0.25%) or, if there is no nearest one quarter of one percent (0.25%), to
the next higher one quarter of one percent (0.25%)) of (A) one half of one
percent (0.50%) per annum plus (B) the rate per annum obtained by dividing
(I) the latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates of deposit
of major United States money market banks, such three-week moving average
(adjusted to the basis of a year of 360 days) being determined weekly on
each Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday (or,
if such day is not a Business Day, on the next preceding Business Day) by
Citibank on the basis of such rates reported by certificate of deposit
dealers to, and published by, the Federal Reserve Bank of New York, or,
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<PAGE> 14
if such publication shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from three (3) New York
certificate of deposit dealers of recognized standing selected by Citibank,
by (II) a percentage equal to 100% minus the average of the daily
percentages specified during such three-week period by the Federal Reserve
Board (or any successor) for determining the maximum reserve requirement
(including, but not limited to, any emergency, supplemental or other
marginal reserve requirement) for Citibank in respect of liabilities which
consist of or which include (among other liabilities) three-month Dollar
nonpersonal time deposits in the United States plus (C) the average during
such three-week period of the annual assessment rates estimated by Citibank
for determining the then current annual assessment payable by Citibank to
the Federal Deposit Insurance Corporation (or any successor) for insuring
Dollar deposits of Citibank in the United States; and
(iii) the sum of (A) one half of one percent (0.50%) per annum plus (B)
the Federal Funds Rate in effect from time to time during such period.
"Base Rate Loans" means all Loans which bear interest at a rate
determined by reference to the Base Rate as provided in Section 4.01(a).
"Benefit Plan" means a defined benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan or a Foreign Pension Plan) in respect
of which the Borrower or any ERISA Affiliate is, or within the immediately
preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
"Blockage Notice" is defined in Section 11.03(c).
"Borrower's Projections" means the financial projections prepared by
the management of the Borrower with respect to the Borrower and its Subsidiaries
on a consolidated basis and on a monthly basis for Fiscal Year 1996 and on an
annual basis for Fiscal Years 1997 through 2002, delivered by the Borrower to
the Lenders on or prior to the Closing Date.
"Borrowing" means a borrowing consisting of Loans of the same type made
on the same day.
"Business Day" means a day, in the applicable local time, which is not
a Saturday or Sunday or a legal holiday and on which banks are not required or
permitted by law or other governmental action to close (i) in New York, New York
or (ii) in the case of Eurodollar Rate Loans, in London, England or (iii) in the
case of Letter of Credit transactions for a particular Issuing
-7-
<PAGE> 15
Bank, in the place where its office for issuance or administration of the
pertinent Letter of Credit is located.
"C Term Loan" is defined in Section 2.01(c).
"C Term Loan Commitment" means, with respect to any Lender, the
obligation of such Lender to make C Term Loans pursuant to the terms and
conditions hereof, and which shall not exceed the principal amount set forth
opposite such Lender's name under the heading "C Term Loan Commitment" on
Schedule 1.01.1 or the signature page of the Assignment and Acceptance by which
it became a Lender, as modified from time to time pursuant to the terms hereof
or to give effect to any applicable Assignment and Acceptance, and "C Term Loan
Commitments" means the aggregate principal amount of the C Term Loan Commitments
of all the C Term Loan Lenders, the maximum aggregate principal amount of which
shall not exceed $45,000,000, as reduced from time to time pursuant to the terms
hereof.
"C Term Loan Lender" is defined in Section 2.01(c).
"C Term Loan Notes" means notes evidencing the Borrower's obligation to
repay the C Term Loans.
"C Term Loan Pro Rata Share" means, with respect to any Lender, (i)
prior to the Closing Date, the percentage obtained by dividing (A) such Lender's
C Term Loan Commitment at such time by (B) the aggregate amount of all C Term
Loan Commitments at such time; and (ii) on and after the Closing Date, the
percentage obtained by dividing (x) the outstanding principal amount of such
Lender's C Term Loans by (y) the aggregate outstanding principal amount of all C
Term Loans.
"Capital Expenditures" means, for any period, the aggregate of all
expenditures (whether payable in cash or other Property or accrued as a
liability (but without duplication)) during such period that, in conformity with
GAAP, are required to be included in or reflected by the Borrower's or any of
its Subsidiaries' fixed asset accounts as reflected in any of their respective
balance sheets; provided, however, (i) Capital Expenditures shall include,
whether or not such a designation would be in conformity with GAAP, (A) that
portion of Capital Leases which is incurred and capitalized during such period
on the consolidated balance sheet of the Borrower and its Subsidiaries and (B)
expenditures for Equipment which is purchased simultaneously with the trade-in
of existing Equipment owned by the Borrower or any of its Subsidiaries, to the
extent the gross purchase price of the purchased Equipment exceeds the actual
trade-in value of the Equipment being traded in at such time; and (ii) Capital
Expenditures shall exclude, whether or not such a designation would be in
conformity with GAAP, expenditures made in connection with the replacement or
restoration of Property, to
-8-
<PAGE> 16
the extent reimbursed or financed from insurance or condemnation proceeds and
permitted pursuant to Section 8.07.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capital Stock", with respect to any Person, means any capital stock of
such Person, regardless of class or designation, and all warrants, options,
purchase rights or participations with respect thereto and other equivalents or
interests in equity of such Person.
"Cash Collateral" means cash or Cash Equivalents held by the Agent, any
of the Issuing Banks or any of the Lenders as security for the Obligations.
"Cash Collateral Account" means account number 4065 1094 of the
Borrower at Citibank's offices in New York, New York into which certain cash
proceeds of Collateral may be transferred in accordance with Section 3.05.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations), which, at the time of acquisition, are rated A-1 (or
better) by Standard & Poor's Corporation (or its successors) or P-1 (or better)
by Moody's Investors Service, Inc. (or its successors); (iii) commercial paper
of United States and foreign banks and bank holding companies and their
subsidiaries and United States and foreign finance, commercial industrial or
utility companies which, at the time of acquisition, are rated A- 1 (or better)
by Standard & Poor's Corporation (or its successors) or P-1 (or better) by
Moody's Investors Service, Inc. (or its successors); (iv) marketable direct
obligations of any State of the United States of America or any political
subdivision of any such State given on the date of such investment the highest
credit rating by Moody's Investor Service, Inc. (or its successors) or Standard
& Poor's Corporation (or its successors); and (v) reverse purchase agreements
covering obligations of the type specified in clause (i); provided, that the
maturities of any such Cash Equivalents referred to in clauses (i) through (v)
shall not exceed one hundred eighty (180) days from the date any such Cash
Equivalents are acquired by the Borrower or any of its Subsidiaries.
-9-
<PAGE> 17
"Cash Flow Period" means the period from May 1, 1996 through the end of
Fiscal Year 1996 and, thereafter, as separate periods, each subsequent Fiscal
Year of the Borrower.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. SectionSection9601 et seq., any amendments
thereto, any successor statutes, and any regulations or legally enforceable
guidance promulgated thereunder.
"CERCLIS" is defined in Section 6.01(o).
"Change of Control" means (i) any person or group of persons (within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act) shall
have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5
promulgated by the Securities and Exchange Commission under the Exchange Act,
except that such person shall be deemed to have beneficial ownership of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) of 35% or more of the
outstanding Capital Stock of the Borrower or (ii) during any period of two
consecutive calendar years, individuals who were directors of the Borrower on
the first day of such period (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Borrower was approved by a vote of 66 2/3% of the directors of the Borrower
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) shall
cease to constitute a majority of the board of directors of the Borrower for any
reason.
"Citibank" means Citibank, N.A., a national banking association, and
its successors.
"Citicorp" means Citicorp USA, Inc., a Delaware corporation.
"Claim" means any claim or demand, by any Person, of whatsoever kind or
nature for any alleged Liabilities and Costs, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute,
Permit, ordinance or regulation, common law or otherwise.
"Closing Date" means the date on which the A Term Loans, the B Term
Loans and the C Term Loans are advanced hereunder, but in no event shall such
date be later than May 31, 1996.
"Collateral" means all Property and interests in Prop- erty now owned
or hereafter acquired by the Borrower or any of
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its Subsidiaries upon which a Lien is granted under any of the Loan Documents.
"Commercial Letter of Credit" means any documentary letter of credit
issued by an Issuing Bank pursuant to Section 2.04 for the account of the
Borrower, which is drawable upon presentation of documents evidencing the sale
or shipment of goods purchased by the Borrower in the ordinary course of its
business.
"Commitment" means, with respect to any Lender, the obligation of such
Lender, as the case may be, to make A Term Loans, B Term Loans, C Term Loans or
Revolving Loans and to participate in Letters of Credit and Swing Loans pursuant
to the terms and conditions hereof, which obligation shall not exceed the
principal amount set forth opposite such Lender's name under the heading
"Aggregate Commitment" on Schedule 1.01.1 or the signature page of the
Assignment and Acceptance by which it became a Lender, as modified from time to
time pursuant to the terms hereof or to give effect to any applicable Assignment
and Acceptance, and "Commitments" means the aggregate principal amount of the
Commitments of all the Lenders, the maximum amount of which shall not exceed a
principal amount of $175,000,000, as reduced from time to time pursuant to the
terms hereof.
"Compliance Certificate" is defined in Section 7.01(c).
"Consolidated Cash Interest Expense" means, for any period on a
consolidated basis for any Person and its Subsidiaries, all of the following as
determined in conformity with GAAP, (i) total interest expense, whether paid or
accrued (without duplication) (including the interest component of Capital Lease
obligations for such period), including, without limitation, all bank fees,
commissions, discounts and other fees and charges owed with respect to letters
of credit and net costs under Interest Rate Contracts, but excluding, however,
(x) amortization of discount, (y) interest paid in property other than cash and
(z) any other interest expense not payable in cash, minus (ii) any net payments
received during such period under Interest Rate Contracts and any interest
income received in cash and Cash Equivalents in respect of Investments.
"Consolidated Fixed Charges" means, for any period on a consolidated
basis for any Person and its Subsidiaries, the sum of the amounts for such
period of (i) Consolidated Cash Interest Expense of such Person and its
Subsidiaries and (ii) scheduled payments of principal on Indebtedness of such
Person and its Subsidiaries (including, without limitation, the principal
component of Capital Lease obligations and, in the case of the Borrower, the
Term Loans).
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<PAGE> 19
"Consolidated Net Income" means, for any period on a consolidated basis
for any Person and its Subsidiaries, the consolidated net income (or loss) of
such Person and its Subsidiaries after taxes for such period taken as a single
accounting period, determined in conformity with GAAP.
"Consolidated Net Worth" means, with respect to any Person, at any
time, (i) consolidated stockholders' equity of such Person and its consolidated
Subsidiaries, determined in accordance with GAAP, plus (ii) any minimum pension
liability adjustment applicable to such Person in accordance with GAAP plus
(iii) any negative (or minus any positive) cumulative foreign currency
translation adjustments applicable to such Person in accordance with GAAP;
provided that, in calculating Consolidated Net Worth for purposes of Section
10.01, there shall be excluded any increase or decrease in Consolidated Net
Worth resulting from either (x) the sale of Discontinued Operations or the Non-
Operating Assets or (y) the IIC Reinstatement.
"Constituent Document" means, with respect to any entity, (i) the
articles/certificate of incorporation (or the equivalent organizational
documents) of such entity, (ii) the by-laws (or the equivalent governing
documents) of such entity and (iii) any document setting forth the designation,
amount and/or relative rights, limitations and preferences of any class or
series of such entity's Capital Stock.
"Contaminant" means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, radioactive waste, special waste,
petroleum or petroleum-derived substance or waste, asbestos in any form or
condition, polychlorinated biphenyls ("PCBs"), or any hazardous or toxic
constituent thereof, as these terms are defined under Environmental, Health or
Safety Requirements of Law.
"Contractual Obligation", as applied to any Person, means any provision
of any Securities issued by that Person or any indenture, mortgage, deed of
trust, security agreement, pledge agreement, guaranty, contract, undertaking,
agreement or instrument to which that Person is a party or by which it or any of
its properties is bound or subject.
"Credit Obligations" means, at any particular time, the sum of (i) the
Revolving Credit Obligations at such time, plus (ii) the outstanding principal
amount of the A Term Loans at such time, plus (iii) the outstanding principal
amount of the B Term Loans at such time, plus (iv) the outstanding principal
amount of the C Term Loans at such time.
"Cure Loans" is defined in Section 3.02(b)(v).
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<PAGE> 20
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Currency Agreement Exposure" means, at any time and from time to time,
an aggregate amount equal to one hundred and ten percent (110%) of the then
current market value (determined by Citibank in accordance with Citibank's
customary practices) of each Currency Agreement to which the Borrower is a party
for the remaining term and notional amount of such Currency Agreement,
disregarding any Currency Agreement with respect to which such then current
market value to the Borrower is positive; provided, however, that if (i) the
Borrower is a party to (x) a Currency Agreement providing for the Borrower's
purchase of a particular currency and (y) a similar Currency Agreement with the
same counterparty providing for the sale of such currency and (ii) the Borrower
and such counterparty have entered into a netting agreement in form and
substance satisfactory to the Agent with respect to such Currency Agreements,
then the then current market values (determined by Citibank in accordance with
Citibank's customary practices) of such Currency Agreements shall be netted
against one another in determining the Borrower's aggregate Currency Agreement
Exposure (it being understood and agreed that if any such netting of Currency
Agreements results in a positive net current market value to the Borrower, such
net current market value shall be disregarded in the calculation of the
Borrower's aggregate Currency Agreement Exposure).
"Customary Permitted Liens" means Liens (other than Environmental Liens
and Liens in favor of the PBGC)
(i) with respect to the payment of taxes, assessments or governmental
charges in all cases which are not yet due or which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with GAAP;
(ii) of landlords arising by statute and Liens of suppliers,
mechanics, carriers, materialmen, warehouse- men or workmen and other Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
(iii) incurred or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
types of social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment
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<PAGE> 21
of borrowed money), surety, appeal, customs and performance bonds; provided
that all such Liens do not in the aggregate materially detract from the
value of the Borrower's or such Subsidiary's assets or Property or
materially impair the use thereof in the operation of the Borrower's and
its Subsidiaries' businesses;
(iv) arising as a result of progress payments or otherwise under
Government Contracts;
(v) arising with respect to zoning restrictions, easements, licenses,
reservations, covenants, rights-of-way, utility easements, building
restrictions and other similar charges or encumbrances on the use of Real
Property which do not materially interfere with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(vi) leases or subleases of Real Property approved by the Agent or
otherwise permitted under this Agreement; and
(vii) constituting the filing of notice financing statements of a
lessor's rights in and to personal property leased to the Borrower in the
ordinary course of the Borrower's business.
"Decision Period" is defined in Section 8.07.
"Default" means an event which, with the giving of notice or the lapse
of time, or both, would constitute an Event of Default.
"Disbursement Account" means account number 4065 1107 of the Borrower
at Citibank, or such other bank account as shall subsequently be designated as
the Disbursement Account by the Borrower by notice to the Agent.
"Discontinued Operations" means Roltra-Morse S.p.A. and Varo's
electronic systems division.
"DOL" means the United States Department of Labor and any successor
department or agency.
"Dollars" and "$" mean the lawful money of the United States.
"Dollar Equivalent" means, with respect to any Alternative Currency at
the time of determination thereof, the equivalent of such currency in Dollars
determined at the rate of exchange quoted by the Agent in New York, New York at
11:00 a.m. (New York time) on the date of determination, to prime banks in
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<PAGE> 22
New York for the spot purchase in the New York foreign exchange market of such
amount of Dollars with such Alternative Currency.
"Domestic Lending Office" means, with respect to any Lender, such
Lender's office, located in the United States, specified as the "Domestic
Lending Office" under its name on the signature pages hereof or on the
Assignment and Acceptance by which it became a Lender or such other United
States office of such Lender as it may from time to time specify by written
notice to the Borrower and the Agent.
"EBITDA" means, for any period on a consolidated basis for any Person
and its Subsidiaries, (i) the sum of the amounts for such period for such Person
and its Subsidiaries on a consolidated basis of (A) Consolidated Net Income, (B)
depreciation, amortization expense and other non-cash charges, (C) Consolidated
Cash Interest Expense, (D) charges for federal, state, local and foreign income
taxes, (E) extraordinary losses and, in the case of the Borrower, losses arising
from the sale of the Discontinued Operations and the Non-Operating Assets and
any charge resulting from the IIC Reinstatement, in each case to the extent the
same have been included in the determination of Consolidated Net Income and (F)
net income (if any) of less than wholly-owned Subsidiaries which has been
attributed to minority interests in accordance with GAAP, minus (ii) the sum of
the amounts for such period for such Person and its Subsidiaries on a
consolidated basis of (A) extraordinary gains and, in the case of the Borrower,
gains arising from the sale of the Discontinued Operations and the Non-Operating
Assets, in each case to the extent the same have been included in the
determination of Consolidated Net Income for such period and (B) net loss (if
any) of less than wholly-owned Subsidiaries which has been attributed to
minority interests in accordance with GAAP.
"Eligible Assignee" means (i) a Lender or any Affiliate thereof; (ii) a
commercial bank having total assets in excess of $500,000,000; (iii) a finance
company, insurance company, other financial institution or fund, reasonably
acceptable to the Agent, which is regularly engaged in making, purchasing or
investing in loans and having or managing total assets in excess of
$500,000,000; (iv) a savings and loan association or savings bank organized
under the laws of the United States or any state thereof which has a net worth,
determined in accordance with GAAP, in excess of $250,000,000; or (v) a finance
company, insurance company, bank, other financial institution or fund reasonably
acceptable to the Agent and the Borrower.
"Environmental, Health or Safety Requirements of Law" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing the environment, health or safety,
including but not limited to any law, regulation, or order relating to the use,
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<PAGE> 23
handling, or disposal of any Contaminant, any law, regulation, or order relating
to Remedial Action and any law, regulation, or order relating to workplace or
worker safety and health, and such Requirements as are promulgated by the
specifically authorized Governmental Authority responsible for administering
such Requirements, each as from time to time hereafter in effect.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for any (i) liabilities under any Environmental, Health or Safety
Requirements of Law, or (ii) damages arising from, or costs incurred by such
Governmental Authority in response to, a Release or threatened Release of a
Contaminant into the environment.
"Environmental Property Transfer Acts" means any applicable Requirement
of Law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any Property or the transfer, sale or
lease of any Property or deed or title for any Property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act", "Environmental Cleanup Responsibility Act" or "Responsible Property
Transfer Act".
"Equipment" means, with respect to any Person, all of such Person's
present and future (i) equipment, including, without limitation, machinery,
manufacturing, distribution, selling, data processing and office equipment,
assembly systems, tools, molds, dies, fixtures, appliances, furniture,
furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures,
(ii) other tangible personal Property (other than such Person's Inventory), and
(iii) any and all accessions, parts and appurtenances attached to any of the
foregoing or used in connection therewith, and any substitutions therefor and
replacements, products and proceeds thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Internal Revenue Code) as the Borrower, (ii) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with the Borrower, and (iii)
member of the same affiliated service group (within the meaning of section
414(m) of the Internal Revenue Code) as the Borrower, any corporation described
in clause (i) above or any partnership or trade or business described in clause
(ii) above.
"Eurodollar Affiliate" means, with respect to each Lender, the
Affiliate of such Lender (if any) set forth below
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<PAGE> 24
such Lender's name under the heading "Eurodollar Affiliate" on the signature
pages hereof or on the Assignment and Acceptance by which it became a Lender or
such Affiliate of a Lender as it may from time to time specify by written notice
to the Borrower and the Agent.
"Eurodollar Interest Payment Date" means (i) with respect to any
Eurodollar Rate Loan, the last day of each Eurodollar Interest Period applicable
to such Loan and (ii) with respect to any Eurodollar Rate Loan having a
Eurodollar Interest Period in excess of three (3) calendar months, the last day
of each three (3) calendar month interval during such Eurodollar Interest
Period.
"Eurodollar Interest Period" is defined in Section 4.02(b).
"Eurodollar Interest Rate Determination Date" is defined in Section
4.02(c).
"Eurodollar Lending Office" means, with respect to any Lender, the
office or offices of such Lender (if any) set forth below such Lender's name
under the heading "Eurodollar Lending Office" on the signature pages hereof or
on the Assignment and Acceptance by which it became a Lender or such office or
offices of such Lender as it may from time to time specify by written notice to
the Borrower and the Agent.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Interest
Period applicable to a Borrowing of Eurodollar Rate Loans, an interest rate per
annum obtained by dividing (i) the interest rate per annum (rounded upward to
the nearest whole multiple of one-sixteenth of one percent (0.0625%)) specified
by notice to the Agent by Citibank as the rate per annum at which deposits in
Dollars are offered by the principal office of Citibank in London, England to
major banks in the London interbank market at approximately 11:00 a.m. (London
time) on the Eurodollar Interest Rate Determination Date for such Eurodollar
Interest Period for a period equal to such Eurodollar Interest Period and in an
amount substantially equal to the amount of the Eurodollar Rate Loan to be
outstanding to Citicorp for such Eurodollar Interest Period, by (ii) a
percentage equal to 100% minus the Eurodollar Reserve Percentage. The Eurodollar
Rate shall be adjusted automatically on and as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loans" means those Loans outstanding which bear
interest at a rate determined by reference to the Eurodollar Rate and the
Applicable Eurodollar Rate Margin as provided in Section 4.01(a).
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<PAGE> 25
"Eurodollar Reserve Percentage" means, for any day, that percentage
which is in effect on such day, as prescribed by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a member bank
of the Federal Reserve System in New York, New York with deposits exceeding five
billion Dollars in respect of "Eurocurrency Liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Eurodollar Rate Loans is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any bank to United States residents).
"Event of Default" means any of the occurrences set forth in Section
11.01 after the expiration of any applicable grace period and the giving of any
applicable notice, in each case as expressly provided in Section 11.01.
"Excess Cash Flow" means, for any Cash Flow Period, an amount equal to
the Borrower's and its Subsidiaries' consolidated (i) EBITDA (calculated, for
this purpose only, excluding the gains or losses from sales of assets (and any
related tax effects)), plus (ii) the net reduction, if any, in Working Capital
during such period, minus (iii) the net increase, if any, in Working Capital
during such period, minus (iv) income taxes actually paid in cash during such
period, minus (v) Capital Expenditures actually paid in cash during such period,
to the extent permitted to be paid hereunder, minus (vi) Consolidated Cash
Interest Expense for such period, minus (vii) the aggregate amount of
Investments made by the Borrower and the Restricted Subsidiaries during such
period in accordance with Section 9.04 (iii), (viii), (ix), (x) and (xi), minus
(viii) to the extent permitted in accordance with this Agreement, all repayments
and prepayments of any Indebtedness (other than in respect of non- contingent
Revolving Credit Obligations) of the Borrower and/or its Subsidiaries during
such period, (ix) plus increases (and minus decreases) in non-contingent
Revolving Credit Obligations during such period, plus (x) the aggregate amount
of Net Cash Proceeds received by the Borrower and/or any of its Subsidiaries
during such period on account of the sale, assignment or other disposition of
any Property (including, without limitation, all or any portion of the
Discontinued Operations), minus (xi) the aggregate amount of cash dividends
accrued or paid during such period with respect to Borrower's Capital Stock, to
the extent permitted to be paid hereunder.
"Existing Credit Agreement" means the Credit Agreement dated as of
August 5, 1994, as amended, among Borrower, the Guarantors (as defined therein),
the institutions party thereto as Lenders, the institutions party thereto as
Issuing Banks and the Agent.
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"Fair Market Value" means, with respect to any asset or group of
assets, the value of the consideration obtainable in a sale of such asset in the
open market, assuming a sale by a willing seller to a willing purchaser dealing
at arm's length and arranged in an orderly manner over a reasonable period of
time, each having reasonable knowledge of the nature and characteristics of such
asset, neither being under any compulsion to act, determined in good faith by
the Borrower.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day in New York, New York, for the next preceding
Business Day) in New York, New York by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day in New
York, New York, the average of the quotations for such day on such transactions
received by Citibank from three federal funds brokers of recognized standing
selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any Governmental Authority succeeding to its functions.
"Fiscal Year" means the fiscal year of the Borrower, which shall be the
12-month period ending on December 31 of each calendar year.
"Fixed Charge Coverage Ratio" means, with respect to any period, the
ratio of (i) EBITDA of the Borrower and its Subsidiaries (other than the
Discontinued Operations) on a consolidated basis for such period, minus Capital
Expenditures made by the Borrower and its Subsidiaries (other than in respect of
the Discontinued Operations) during such period, minus charges for federal,
state, local and foreign income taxes actually paid by the Borrower and its
Subsidiaries (other than on account of the Discontinued Operations) during such
period, minus any net increase in Working Capital for such period, plus any net
decrease in Working Capital for such period to (ii) Consolidated Fixed Charges
of the Borrower and its Subsidiaries (other than Consolidated Fixed Charges that
were actually incurred by the Discontinued Operations but including any such
charges that were incurred by the Borrower and allocated to the Discontinued
Operations) on a consolidated basis for such period.
"Foreign Employee Benefit Plan" means any employee benefit plan as
defined in Section 3(3) of ERISA which is maintained or contributed to for the
benefit of the employees of the Borrower, any of its Subsidiaries or any of its
ERISA
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<PAGE> 27
Affiliates, but which is not covered by ERISA pursuant to ERISA Section 4(b)(4).
"Foreign Pension Plan" means any employee benefit plan as defined in
Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit
of employees of the Borrower, any of its Subsidiaries or any of its ERISA
Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA,
and (iii) under applicable local law, is required to be funded through a trust
or other funding vehicle.
"Funding Date" means, with respect to any Loan, the date of the funding
of such Loan.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board, the American
Institute of Certified Public Accountants and the Financial Accounting Standards
Board or in such other statements by such other entity as may be in general use
by significant segments of the accounting profession as in effect on the date
hereof (unless otherwise specified pursuant to Section 14.04).
"Governmental Authority" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Government Contract" means any bid, quotation, proposal, contract,
agreement, work authorization, lease, commitment or sale or purchase order of
the Borrower or any of its Subsidiaries that is with the United States
Government, or any state, local or foreign government, including, without
limitation, all contracts and work authorizations to supply goods and services
to the United States Government.
"Guaranteed Obligations" is defined in Section 12.01(a).
"Guarantor" means, subject to Section 12.09 hereof, Varo, Warren Pumps
and any other Subsidiary of Borrower that agrees to guarantee the Obligations
pursuant to the Loan Documents.
"Guarantor Subordinated Debt" is defined in Section 12.07.
"Guaranty" means the undertaking of each of the Guarantors contained in
Article XII.
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"Holder" means any Person entitled to enforce any of the Obligations,
whether or not such Person holds any evidence of Indebtedness, including,
without limitation, the Agent, each Lender and each Issuing Bank.
"IIC Reinstatement" means the reinstatement of the judgment of
approximately $11,200,000 (plus interest accruing from and including March 20,
1995 at the lesser of (a) 11% per annum and (b) the actual per annum rate of
interest) against the Borrower in favor of International Insurance Company in
the case titled International Insurance Company, Plaintiff vs. Red and White
Company, Transamerica Corp., Transamerica Delaval, Inc., Imo Delaval, Inc. and
Does 1 to 100, inclusive, Defendants.
"Indebtedness", as applied to any Person, means, at any time, without
duplication, (a) all indebtedness, obligations or other liabilities of such
Person (i) for borrowed money or evidenced by debt securities, debentures,
acceptances, notes or other similar instruments, and any accrued interest, fees
and charges relating thereto, (ii) under profit payment agreements or in respect
of obligations to redeem, repurchase or exchange any Securities of such Person
or to pay dividends in respect of any Capital Stock, (iii) with respect to
letters of credit issued for such Person's account, (iv) to pay the deferred
purchase price of property or services, except accounts payable and accrued
expenses arising in the ordinary course of business, (v) in respect of Capital
Leases, or (vi) which are Accommodation Obligations (other than to the extent
any such Accommodation Obligations support the payment of indebtedness,
obligations or other liabilities which themselves constitute Indebtedness of
such Person); (b) all indebtedness, obligations or other liabilities of such
Person or others secured by a Lien on any property of such Person, whether or
not such indebtedness, obligations or liabilities are assumed by such Person,
all as of such time; (c) all indebtedness, obligations or other liabilities of
such Person in respect of Interest Rate Contracts and Currency Agreements, net
of liabilities owed to such Person by the counterparties thereon; and (d) all
obligations of such Person under appeal bonds, surety bonds or other similar
arrangements.
"Indemnitee" is defined in Section 14.03.
"Indemnified Matter" is defined in Section 14.03.
"Interest Coverage Ratio" means, with respect to any period, the ratio
of (i) EBITDA of the Borrower and its Subsidiaries (other than the Discontinued
Operations) on a consolidated basis for such period to (ii) Consolidated Cash
Interest Expense of the Borrower and its Subsidiaries (other than Consolidated
Cash Interest Expense that was actually incurred by the Discontinued Operations
but including any such expense that
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was incurred by the Borrower and allocated to the Discontinued Operations) on a
consolidated basis for such period.
"Interest Rate Contract Exposure" means, at any time and from time to
time, an aggregate amount equal to one hundred and ten percent (110%) of the
then current market value (determined by Citibank in accordance with Citibank's
customary practices) of each Interest Rate Contract to which the Borrower is a
party for the remaining term and notional amount of such Interest Rate Contract,
disregarding (subject to the immediately succeeding sentence) any Interest Rate
Contract with respect to which such then current market value to the Borrower is
positive. If (i) the Borrower is a party to more than one Interest Rate Contract
with the same counterparty and (ii) the Borrower and such counterparty have
entered into a netting agreement in form and substance satisfactory to the Agent
with respect to such Interest Rate Contracts, then the then current market
values (determined by Citibank in accordance with Citibank's customary
practices) of such Interest Rate Contracts shall be netted against one another
in determining the Borrower's aggregate Interest Rate Contract Exposure (it
being understood and agreed that if any such netting of Interest Rate Contracts
results in a positive net current market value to the Borrower, such net current
market value shall be disregarded in the calculation of the Borrower's aggregate
Interest Rate Contract Exposure).
"Interest Rate Contracts" means interest rate exchange, swap, collar or
cap or similar agreements providing interest rate protection.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, any successor
statute and any regulations or guidance promulgated thereunder.
"Inventory" means, with respect to any Person, all of such Person's
present and future (i) inventory (including unbilled accounts receivable), (ii)
goods, merchandise and other personal Property furnished or to be furnished
under any contract of service or intended for sale or lease, and all goods
consigned by such Person and all other items which have previously constituted
Equipment but are then currently being held for sale or lease in the ordinary
course of such Person's business, (iii) raw materials, work-in-process and
finished goods, (iv) materials and supplies of any kind, nature or description
used or consumed in such Person's business or in connection with the
manufacture, production, packing, shipping, advertising, finishing or sale of
any of the Property described in clauses (i) through (iii) above, (v) goods in
which such Person has a joint or other interest to the extent of such Person's
interest therein or right of any kind (including, without limitation, goods in
which such Person has an interest or right as consignee), and (vi) goods which
are
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returned to or repossessed by such Person; in each case whether in the
possession of such Person, a bailee, a consignee, or any other Person for sale,
storage, transit, processing, use or otherwise, and any and all documents for or
relating to any of the foregoing.
"Investment" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of Securities, or of a beneficial interest in
Securities issued by or other equity ownership interest in any other Person,
(ii) any purchase by that Person of all or a significant part of the assets of a
business conducted by another Person, and (iii) any loan, advance (other than
prepaid expenses, accounts receivable, advances to employees and similar items
made or incurred in the ordinary course of business as presently conducted), or
capital contribution by that Person to any other Person, including all
Indebtedness to such Person arising from a sale of property by such Person other
than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"Issue" means, with respect to any Letter of Credit, either issue, or
extend the expiry of, or renew, or increase the amount of, such Letter of
Credit, and the terms "Issued" and "Issuance" shall have corresponding meanings.
"Issuing Banks" means Citibank, The First National Bank of Boston, The
Chase Manhattan Bank, N.A. and each other Lender (or Affiliate of a Lender)
approved by the Agent and the Borrower who has agreed to become an Issuing Bank
for the purpose of issuing Letters of Credit pursuant to Section 2.04.
"Judgment Amount" means $10,000,000; provided, however, if the IIC
Reinstatement occurs and the principal amount thereof is less than $11,200,000
or the IIC Reinstatement does not occur and the underlying judgment relating
thereto is vacated or the claim relating thereto is dismissed, then the Judgment
Amount shall be increased by an amount equal to $11,200,000 minus (i) the
principal amount of the IIC Reinstatement (in the event such reinstatement
occurs) or (ii) zero (0) (in the event such reinstatement does not occur and the
underlying judgment relating thereto is vacated or the claim relating thereto is
dismissed).
"Leases" means those Real Property leases, tenancies or occupancies
entered into by the Borrower or one of its Subsidiaries, as tenant, sublessor or
sublessee either directly or as the successor in interest to the Borrower or any
of the Restricted Subsidiaries.
"Lender" means, as of the Closing Date, Citicorp and each other
institution (other than the Borrower and the
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Guarantors) which is a signatory hereto and, at any other given time, each
institution which is a party hereto as a Lender, whether as a signatory hereto
or pursuant to an Assignment and Acceptance.
"Letter Agreement" means the fee letter dated February 15, 1996 from
Citibank and accepted and agreed to by the Borrower.
"Letter of Credit" means any Commercial Letter of Credit or Standby
Letter of Credit.
"Letter of Credit Availability" means, at any particular time, the
amount by which the Letter of Credit Sublimit exceeds the Letter of Credit
Obligations outstanding at such time.
"Letter of Credit Obligations" means, at any particular time, the sum
of (i) all outstanding Reimbursement Obligations, plus (ii) the aggregate
undrawn face amount of all outstanding Letters of Credit, plus (iii) the
aggregate face amount of all Letters of Credit requested by the Borrower but not
yet issued (unless the request for an unissued Letter of Credit has been denied
pursuant to Section 2.04(c)(i)). For purposes of determining the amount of
Letter of Credit Obligations (or any component thereof) in respect of any Letter
of Credit which is denominated in an Alternative Currency, such amount shall
equal the Dollar Equivalent of the amount of such Alternative Currency at the
time of determination thereof.
"Letter of Credit Reimbursement Agreement" means, with respect to a
Letter of Credit, such form of application therefor and form of reimbursement
agreement therefor (whether in a single or several documents, taken together) as
the Issuing Bank from which the Letter of Credit is requested may employ in the
ordinary course of business for its own account, with such modifications thereto
as may be agreed upon by the Issuing Bank and the Borrower and as are not
materially adverse (in the judgment of the Issuing Bank) to the interests of the
Lenders; provided, however, in the event of any conflict between the terms
hereof and of any Letter of Credit Reimbursement Agreement, the terms hereof
shall control.
"Letter of Credit Sublimit" means Forty Million Dollars ($40,000,000).
"Liabilities and Costs" means all liabilities, obligations,
responsibilities, losses and damages with respect to or arising out of or in
connection with any violation of any Environmental, Health or Safety Requirement
of Law, including, without limitation, any such liability, obligation,
responsibility, loss or damage with respect to any of the
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following: personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton injury,
damage or threat to the environment or public health or welfare, costs and
expenses (including, without limitation, attorney, expert and consulting fees
and costs of investigation, feasibility or Remedial Action studies), fines,
penalties and monetary sanctions, voluntary disclosures made to, or settlements
with, the United States Government, direct or indirect, known or unknown,
absolute or contingent, past, present or future, including interest, if any,
thereon.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale agreement, deposit arrangement, security interest,
encumbrance, lien (statutory or other), preference, priority or other security
agreement or preferential arrangement (including, without limitation, any
negative pledge arrangement and any agreement to provide equal and ratable
security) of any kind or nature whatsoever in respect of any property of a
Person, whether granted voluntarily or imposed by law, and includes the interest
of a lessor under a Capital Lease or under any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement or similar notice (other than a financing statement
filed by a "true" lessor pursuant to Section 9-408 of the Uniform Commercial
Code), naming the owner of such property as debtor, under the Uniform Commercial
Code or other comparable law of any jurisdiction.
"Loan Account" is defined in Section 2.05(b).
"Loan Documents" means this Agreement, the Notes, the Letter Agreement,
the Letter of Credit Reimbursement Agreements, the Lockbox Agreements, the
documents executed or delivered pursuant to Sections 5.01(a) and (b) by the
Borrower, any Guarantor or any other Subsidiary of the Borrower, any Currency
Agreements to which any Lender or any Affiliate of a Lender is a party, any
Interest Rate Contracts to which any Lender or any Affiliate of a Lender is a
party, and all other instruments, agreements and written Contractual Obligations
between the Borrower or any Subsidiary of the Borrower, on the one hand, and any
of the Agent, the Lenders or the Issuing Banks, on the other hand, in each case
delivered to either the Agent, such Lender or such Issuing Bank pursuant to or
in connection with the transactions contemplated hereby.
"Loans" means all the Term Loans, the Revolving Loans, the Swing Loans
and all Base Rate Loans and Eurodollar Rate Loans.
"Lockbox Agreement" means a lockbox agreement executed by each Lockbox
Bank, the Borrower (or in the case of a Restricted Subsidiary with a separate
Lockbox Account, such
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Restricted Subsidiary) and the Agent substantially in the form of Exhibit B
(with such changes thereto requested by the Lockbox Bank as may be acceptable to
the Agent and the Borrower), as such agreement may be amended, supplemented or
otherwise modified from time to time.
"Lockbox Bank" means each bank identified as such on Schedule 6.01-AA
that has executed a Lockbox Agreement and has been confirmed by the Agent not to
be in uncertain financial condition, at which the Borrower deposits proceeds of
Collateral.
"Lockbox Accounts" means, collectively, the lockbox accounts
established at the Lockbox Banks; and "Lockbox Account" means any one of the
Lockbox Accounts.
"Lockboxes" means, collectively, the lockboxes established at the
Lockbox Banks for collection of payments in respect of Receivables or other
Collateral; and "Lockbox" means any one of the Lockboxes.
"Margin Stock" means "margin stock" as such term is defined in
Regulation U and Regulation G.
"Material Adverse Effect" means a material adverse effect upon the
business, condition (financial or otherwise), operations, performance, assets or
prospects of the Borrower, individually, or the Borrower and its Subsidiaries,
taken as a whole, (it being understood however, that the IIC Reinstatement shall
not constitute a Material Adverse Effect).
"Material Government Contract" means any Government Contract (or group
of present or future related Government Contracts) with respect to which the
estimated Receivables generated or to be generated pursuant thereto equals or
exceeds $5,000,000.
"Maximum Revolving Credit Amount" means, at any particular time, an
amount equal to (i) the Revolving Credit Commitments at such time minus (ii) the
amount of any Availability Reserves in effect at such time.
"Maximum Subsidiary Investment Amount" means (i) the sum of (A) all
cash Investments made by the Borrower, or which the Borrower is under a
Contractual Obligation to make, since the Closing Date in, (B) the amount of
outstanding Accommodation Obligations incurred by the Borrower in respect of
obligations of, and (C) the Fair Market Value of all assets of the Borrower
contributed and/or sold since the Closing Date to, any Wholly Owned Subsidiary,
less (ii) any cash dividends or other cash distributions (but not intercompany
loans) or proceeds of asset sales received by the Borrower in respect of the
Capital Stock of
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or assets transferred to any such Wholly Owned Subsidiary since the Closing
Date.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any ERISA Affiliate.
"Net Cash Proceeds" means (i) proceeds received by the Borrower or any
of the Restricted Subsidiaries in cash or Cash Equivalents from the sale
(including, without limitation, any Sale and Leaseback Transaction), assignment
or other disposition of any Property, other than sales, assignments and other
dispositions of Property between the Borrower and Wholly Owned Subsidiaries and
sales, assignments and other dispositions permitted under clauses (i) through
(vi) and (ix) of Section 9.02, net of (A) the reasonable cash costs of sale,
assignment or other disposition, (B) taxes paid or payable as a result thereof
and (C) all payments made in respect of any Indebtedness permitted under Section
9.01 which is secured by such Property in accordance with the terms of any Lien
permitted under Section 9.03 upon such Property; provided that evidence of each
of (A), (B) and (C) are provided to the Agent; (ii) proceeds of insurance on
account of the loss of or damage to any such Property or Properties, and
payments of compensation for any such Property or Properties taken by
condemnation or eminent domain, to the extent such proceeds or payments are
required pursuant to Section 8.07 to be applied to prepay the Loans, and (iii)
proceeds received after the Closing Date by the Borrower or any of the
Restricted Subsidiaries in cash or Cash Equivalents from (A) the issuance of any
Capital Stock by the Borrower (other than any such issuance occurring (1) as a
result of the exercise of any Permitted Stock Options or (2) in the ordinary
course of business to any member of the management or board of directors of the
Borrower in connection with such member's employment with or service to the
Borrower), or any other additions to the equity of the Borrower (other than
retained earnings) or any contributions to capital of the Borrower or (B)
issuance of any Indebtedness by the Borrower or any Restricted Subsidiary
(except for such Indebtedness permitted under Section 9.01), in each case net of
reasonable costs incurred in connection with such transaction; provided that
evidence of such costs is provided to the Agent.
"Non-Material Default" means any Default arising solely under or as a
result of Section 11.01(d).
"Non-Operating Assets" means the non-operating assets of the Borrower
and the Restricted Subsidiaries set forth on Schedule 1.01.13.
"Non Pro Rata Loan" is defined in Section 3.02(b)(v).
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"Note" is defined in Section 2.05(a).
"Notice of Borrowing" means a notice substantially in the form of
Exhibit C.
"Notice of Continuation/Conversion" means a notice substantially in the
form of Exhibit D.
"NPL" is defined in Section 6.01(o).
"Obligations" means, to the extent arising hereunder, under the Notes
or under any other Loan Document, all Loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Agent, any
Lender, any Issuing Bank, any Affiliate of the Agent, any Lender or any Issuing
Bank, or any Person entitled to indemnification pursuant to Section 14.03, of
any kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether or not for the payment of money, whether
arising under or in connection with (x) a Currency Agreement with any Lender or
any Affiliate of a Lender or (y) an Interest Rate Contract with any Lender or
any Affiliate of a Lender, or by reason of extension of credit, opening or
amendment of a Letter of Credit or payment of any draft drawn thereunder, loan,
guaranty, indemnification or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all interest, charges, expenses, fees, reasonable
attorneys' fees and disbursements and any other sum chargeable to the Borrower
hereunder or under any other Loan Document.
"Offering Circular" means the Confidential Offering Circular dated
April 23, 1996 and any registration statement prepared by the Borrower relating
to the issuance of the Subordinated Notes and all amendments and supplements
thereto.
"Officer's Certificate" means, as to a corporation, a certificate
executed on behalf of such corporation by an officer or director of such
corporation.
"Operating Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which is not
a Capital Lease.
"Operating Lease Transaction" means with respect to any Person, any
transaction pursuant to which such Person acquires Property with the intention
of entering into an Operating Lease with respect to such Property and such
Property is acquired by such Person and sold to the intended lessor and such
lease is entered into within six months of such acquisition.
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"PBGC" means the Pension Benefit Guaranty Corporation and any Person
succeeding to the functions thereof.
"Permits" means any permit, approval, authorization license, variance,
or permission required from a Governmental Authority under an applicable
Requirement of Law.
"Permitted Existing Accommodation Obligations" means those
Accommodation Obligations of the Borrower and its Subsidiaries existing on the
Closing Date and identified as such on Schedule 1.01.3.
"Permitted Existing Indebtedness" means the Indebted- ness of the
Borrower and its Subsidiaries existing on the Closing Date and identified as
such on Schedule 1.01.4.
"Permitted Existing Investments" means those Investments of the
Borrower and its Subsidiaries existing on the Closing Date and identified as
such on Schedule 1.01.5.
"Permitted Existing Liens" means the Liens on assets of the Borrower or
any of its Subsidiaries existing on the Closing Date and identified as such on
Schedule 1.01.6.
"Permitted Existing Surety Bonds" means the surety bonds and similar
arrangements existing on the Closing Date and identified as such on Schedule
1.01.10.
"Permitted Joint Venture" means any joint venture entered into by the
Borrower, any Guarantor or any Wholly Owned Subsidiary after the Closing Date
with any other Person in the same or a similar line of the Borrower's business,
which joint venture may be in the form of a minority Investment in a
corporation, the form of a Restricted Subsidiary that is a corporation or the
form of an Unrestricted Subsidiary that is a corporation; provided, however,
that the Borrower, such Guarantor or such Wholly Owned Subsidiary shall not,
pursuant to such joint venture, be under a Contractual Obligation to make
Investments or incur Accommodation Obligations after the initial formation
thereof (A) that are not specified in a fixed amount or (B) that would violate
any provision of this Agreement.
"Permitted Senior Debt" means, at any time, without duplication, (a)
all indebtedness, obligations or other liabilities of the Borrower and its
Subsidiaries on a consolidated basis (i) for borrowed money or evidenced by debt
securities, debentures, acceptances, notes or other similar instruments, and any
accrued interest, fees and charges relating thereto (other than any such
indebtedness in respect of the Subordinated Notes or obligations subordinate
thereto), (ii) under profit payment agreements or in respect of obligations to
redeem, repurchase or exchange any Securities of the Borrower
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and its Subsidiaries or to pay dividends in respect of any Capital Stock and
(iii) in respect of Capital Leases.
"Permitted Stock Options" means all options, warrants and/or other
rights to acquire shares of the Borrower's Capital Stock which the Borrower
issues from time to time to its employees, officers and/or directors and the
warrant dated July 15, 1993 issued by the Borrower to the Prudential Insurance
Company of America, which warrant expires December 31, 1998.
"Permitted Total Debt" means, at any time, without duplication, (a) all
indebtedness, obligations or other liabilities of the Borrower and its
Subsidiaries on a consolidated basis (i) for borrowed money or evidenced by debt
securities, debentures, acceptances, notes or other similar instruments, and any
accrued interest, fees and charges relating thereto, (ii) under profit payment
agreements or in respect of obligations to redeem, repurchase or exchange any
Securities of the Borrower and its Subsidiaries or to pay dividends in respect
of any Capital Stock and (iii) in respect of Capital Leases.
"Person" means any natural person, corporation, limited partnership,
limited liability company, general partnership, joint stock company, joint
venture, association, company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, and any Governmental
Authority.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA
(other than a Foreign Employee Benefit Plan) in respect of which the Borrower or
any ERISA Affiliate is, or (except with respect to any employee welfare benefit
plans as defined in Section 3(1) of ERISA) within the immediately preceding six
years was, an "employer" as defined in Section 3(5) of ERISA.
"Process Agent" is defined in Section 14.17.
"Property" means any Real Property or personal property, plant,
building, facility, structure, underground storage tank or unit, Equipment,
Inventory, general intangible, Receivable, or other asset owned, leased or
operated by the Borrower or its Subsidiaries, as applicable (including any
surface water thereon or adjacent thereto, and soil and groundwater thereunder).
"Pro Rata Share" means, with respect to any Lender, the percentage
obtained by dividing the sum of (a) (i) such Lender's Revolving Credit
Commitment at such time, (ii) the outstanding principal amount of such Lender's
A Term Loans at such time, (iii) the outstanding principal amount of such
Lender's B Term Loans at such time, and (iv) the outstanding principal amount of
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such Lender's C Term Loans at such time by (b) the sum of (i) the aggregate
amount of all Revolving Credit Commitments at such time, (ii) the aggregate
principal amount of all A Term Loans outstanding at such time, (iii) the
aggregate principal amount of all B Term Loans outstanding at such time, and
(iv) the aggregate principal amount of all C Term Loans outstanding at such
time; provided, however, if the Revolving Credit Commitments are terminated
pursuant to the terms hereof, then "Pro Rata Share" means the percentage
obtained by dividing (x) such Lender's Credit Obligations by (y) the aggregate
amount of all Credit Obligations.
"Protective Advance" is defined in Section 13.09.
"Real Property" means all of the Borrower's and each of its
Subsidiaries' respective present and future right, title and interest
(including, without limitation, any leasehold estate) in (i) any plots, pieces
or parcels of land, (ii) any improvements, buildings, structures and fixtures
now or hereafter located or erected thereon or attached thereto of every nature
whatsoever (the rights and interests described in clauses (i) and (ii) above
being the "Premises"), (iii) all easements, rights of way, gores of land or any
lands occupied by streets, ways, alleys, passages, sewer rights, water courses,
water rights and powers, and public places adjoining such land, and any other
interests in property constituting appurtenances to the Premises, or which
hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all
hereditaments, gas, oil, minerals (with the right to extract, sever and remove
such gas, oil and minerals), and easements, of every nature whatsoever, located
in or on the Premises and (v) all other rights and privileges thereunto
belonging or appertaining and all extensions, additions, improvements,
betterments, renewals, substitutions and replacements to or of any of the rights
and interests described in clauses (iii) and (iv) above.
"Receivables" means, with respect to any Person, all of such Person's
present and future (i) accounts, (ii) accounts receivable, (iii) rights to
payment for goods sold or leased or for services rendered (except those
evidenced by instruments or chattel paper), whether or not earned by
performance, (iv) all rights in any merchandise or goods which any of the same
may represent, and (v) all rights, title, security and guaranties with respect
to each of the foregoing, including, without limitation, any right of stoppage
in transit.
"Register" is defined in Section 14.01(c).
"Registered Holder" is defined in Section 3.03(d)(i).
"Regulation A" means Regulation A of the Federal Reserve Board as in
effect from time to time.
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"Regulation D" means Regulation D of the Federal Reserve Board as in
effect from time to time.
"Regulation G" means Regulation G of the Federal Reserve Board as in
effect from time to time.
"Regulation U" means Regulation U of the Federal Reserve Board as in
effect from time to time.
"Regulation X" means Regulation X of the Federal Reserve Board as in
effect from time to time.
"Reimbursement Date" is defined in Section 2.04(d)(i)(A).
"Reimbursement Obligations" means, as to the Borrower, the aggregate
non-contingent reimbursement or repayment obligations of the Borrower with
respect to amounts drawn under Letters of Credit.
"Release" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any Property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
Property.
"Remedial Action" means actions required to (i) clean up, remove, treat
or in any other way address Contaminants in the indoor or outdoor environment;
(ii) prevent the Release or threat of Release or minimize the further Release of
Contaminants; or (iii) investigate and determine if a remedial response is
needed with respect to a Release and to design such a response and post-
remedial investigation, monitoring, operation and maintenance and care.
"Reportable Event" means any of the events described in Section 4043 of
ERISA.
"Requirements of Law" means, as to any Person, the charter and by-laws
or other organizational or governing documents of such Person, and any law, rule
or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
including, without limitation, the Securities Act, the Securities Exchange Act,
Regulations G, U and X, ERISA, the Fair Labor Standards Act and any certificate
of occupancy, zoning ordinance, building, or land use requirement or Permit or
labor or employment rule or regulation, including Environmental, Health or
Safety Requirements of Law.
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"Requisite Lenders" means, at any time, Lenders holding, in the
aggregate, more than fifty-one percent (51%) of the sum of (i) the then
aggregate principal amount of the A Term Loans outstanding at such time, (ii)
the then aggregate principal amount of the B Term Loans outstanding at such
time, (iii) the then aggregate principal amount of the C Term Loans outstanding
at such time, and (iv) the then aggregate amount of the Revolving Credit
Commitments in effect at such time; provided, however, that, in the event any of
the Lenders shall have failed to fund its A Term Loan Pro Rata Share, B Term
Loan Pro Rata Share, C Term Loan Pro Rata Share or Revolving Credit Pro Rata
Share, as the case may be, of any Loan requested by the Borrower which such
Lenders are obligated to fund under the terms hereof and any such failure has
not been cured, then for so long as such failure continues, "Requisite Lenders"
means Lenders (excluding all Lenders whose failure to fund their respective
Revolving Credit Pro Rata Share of such Loans have not been so cured) whose Pro
Rata Shares represent more than fifty-one percent (51%) of the aggregate Pro
Rata Shares of such Lenders; provided, further, however, that, in the event that
the Revolving Credit Commitments have been terminated pursuant to the terms
hereof, "Requisite Lenders" means Lenders (without regard to such Lenders'
performance of their respective obligations hereunder) whose aggregate Pro Rata
Shares are greater than fifty-one percent (51%).
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
Capital Stock of the Borrower now or hereafter outstanding, except a dividend
payable solely in (x) shares of such class of stock, (y) shares of any class of
stock of the Borrower which is junior to such class of stock and/or (z) shares
of any class of preferred stock of the Borrower which is not subject to
redemption in whole or part at the option of the holder thereof prior to July
31, 2003, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of Capital Stock of the Borrower or any of the Borrower's Subsidiaries
(other than Wholly Owned Subsidiaries) now or hereafter outstanding, (iii) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to, any Indebtedness evidenced by, or in respect of, principal and
interest on, the Subordinated Notes or any other Indebtedness subordinated to
the Obligations and (iv) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of Capital Stock of the Borrower or
any of its Subsidiaries now or hereafter outstanding; provided, however,
Restricted Junior Payment does
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not include the exchange of Subordinated Notes for other Subordinated Notes.
"Restricted Subsidiary" means a Subsidiary of the Borrower which is
organized and existing under the laws of the United States of America, any State
thereof, the District of Columbia or the United States Virgin Islands.
"Revolving Credit Availability" means, at any particular time, the
amount by which the Maximum Revolving Credit Amount exceeds the sum of (x) the
Revolving Credit Obligations outstanding at such time plus (y) the aggregate
principal amount of Protective Advances outstanding at such time.
"Revolving Credit Commitment" means, with respect to any Lender, the
obligation of such Lender to make Revolving Loans and to participate in Letters
of Credit and Swing Loans pursuant to the terms and conditions hereof, which
obligation shall not exceed the principal amount set forth opposite such
Lender's name under the heading "Revolving Credit Commitment" on Schedule 1.01.1
or the signature page of the Assignment and Acceptance by which it became a
Lender, as modified from time to time pursuant to the terms hereof or to give
effect to any applicable Assignment and Acceptance, and "Revolving Credit
Commitments" means the aggregate principal amount of the Revolving Credit
Commitments of all the Lenders, the maximum aggregate principal amount of which
shall not exceed $70,000,000, as reduced from time to time pursuant to the terms
hereof.
"Revolving Credit Lender" is defined in Section 2.02(a).
"Revolving Credit Notes" means notes evidencing the Borrower's
Obligation to repay the Revolving Loans.
"Revolving Credit Obligations" means, at any particular time, the sum
of (i) the outstanding principal amount of the Swing Loans at such time, plus
(ii) the outstanding principal amount of the Revolving Loans at such time, plus
(iii) the Letter of Credit Obligations outstanding at such time.
"Revolving Credit Pro Rata Share" means, with respect to any Revolving
Credit Lender, the percentage obtained by dividing (i) such Revolving Credit
Lender's Revolving Credit Commitment at such time (in each case, as adjusted
from time to time in accordance with the provisions hereof) by (ii) the
aggregate amount of all Revolving Credit Commitments at such time.
"Revolving Credit Termination Date" means the earlier to occur of (i)
the date of termination of the Revolving Credit Commitments pursuant to the
terms hereof and (ii) April 30, 2001.
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"Revolving Loan" is defined in Section 2.02(a).
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Subsidiary of such Person and is thereafter leased back from
the purchaser thereof by such Person or one of its Subsidiaries; provided that
"Sale and Leaseback Transaction" shall not include an Operating Lease
Transaction.
"Securities" means any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or any certificates of interest, shares,
or participation in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing, but shall not include any evidence of the Obligations.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Significant Unrestricted Subsidiary" means Roltra- Morse S.p.A., Imo
Industries (UK) Limited, Imo Industries Limited, Morse Controls Limited, Imo
Industries GmbH and Imo AB.
"Solvent", when used with respect to any Person, means that at the time
of determination:
(i) the fair market value of its assets is in excess of the total
amount of its liabilities (including, without limitation, contingent
liabilities); and
(ii) the present fair saleable value of its assets is greater than its
probable liability on its existing debts as such debts become absolute and
matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as
they mature; and
(iv) it has capital sufficient to carry on its business as conducted
and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing
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at such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"Standby Letter of Credit" means any letter of credit issued by an
Issuing Bank pursuant to Section 2.04 for the account of the Borrower, which is
not a Commercial Letter of Credit.
"Subordinated Note Documents" means the Subordinated Note Indenture and
the Subordinated Notes issued pursuant thereto, and the all other instruments,
agreements and written Contractual Obligations executed in connection with the
issuance of the Subordinated Notes.
"Subordinated Note Indenture" means the indenture dated as of April 15,
1996 between the Borrower and IBJ Schroder Bank and Trust Company, as trustee,
as the same may be amended, supplemented or otherwise modified from time to
time.
"Subordinated Notes" means the Borrower's 11.75% Senior Subordinated
Notes due 2006 in the aggregate outstanding principal amount not exceeding
$155,000,000 governed by the terms of the Subordinated Note Indenture and
includes, without duplication, the Initial Securities, the Exchange Securities
and the Private Exchange Securities (in each case as defined in the Subordinated
Note Indenture).
"Subsidiary" of a Person means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned or controlled by such Person, one
or more of the other Subsidiaries of such Person or any combination thereof.
"Survey" means a survey of any Real Property owned by the Borrower and
the Borrower's Subsidiaries, dated (i) with respect to the Real Property with
respect to which mortgages are to be delivered on the Closing Date, such date as
is acceptable to (x) the Title Company for purposes of issuing appropriate
endorsements to the Title Policies and (y) the Agent or (ii) with respect to any
Real Property acquired in the future, such date as is acceptable to the Agent,
showing, in either case, lot lines and monuments, building lines, easements
(both burdening and/or benefitting such Real Property), all Liens permitted by
Section 9.03 herein (to the extent that such items can be located by the
surveyor), access locations, the buildings and improvements thereon (including,
but not limited to, roads, streets, driveways and sidewalks), loading docks and
parking lots, acreage of such Real Property, and encroachments, if any, onto
such Real Property and over onto adjoining properties. The Survey shall contain
flood plain designation, if appropriate.
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"Swing Loan" is defined in Section 2.03(a).
"Swing Loan Availability" is defined in Section 2.03(a).
"Swing Loan Bank" means Citicorp, in its individual capacity or, in the
event Citicorp is not the Agent, the Agent (or any Affiliate of the Agent
designated by the Agent), in its individual capacity.
"Swing Loan Note" means one or more notes evidencing the Borrower's
Obligation to repay the Swing Loans.
"Taxes" is defined in Section 3.03(a).
"Term Loans" means all of the A Term Loans, all of the B Term Loans and
all of the C Term Loans.
"Termination Event" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a
Benefit Plan during a plan year in which the Borrower or such ERISA Affiliate
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the
cessation of operations which results in the termination of employment of 20% of
Benefit Plan participants who are employees of the Borrower or any ERISA
Affiliate; (iii) the imposition of an obligation on the Borrower or any ERISA
Affiliate under Section 4041 of ERISA to provide affected parties written notice
of intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar
foreign Governmental Authority of proceedings to terminate a Benefit Plan or a
Foreign Pension Plan; (v) any event or condition which is reasonably likely to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan; (vi) a foreign
Governmental Authority shall appoint or institute proceedings to appoint a
trustee to administer any Foreign Pension Plan; or (vii) the partial or complete
withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan or a
Foreign Pension Plan.
"Title Company" means Chicago Title Insurance Company.
"Title Policy" means an Alta Mortgagee Policy of title insurance with
extended coverage over the standard or general exceptions and such endorsements
reasonably required by the Agent, issued by the Title Company, covering the Real
Property, showing title vested in either the Borrower or the Borrower's
Subsidiaries subject only to the Liens set forth in Section 9.03 herein, which
Title Policy shall show the Agent as the proposed insured and an insurance
amount equal to the lesser of the Loans
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or the Fair Market Value of the Real Property covered by the Title Policy.
"Transaction Costs" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents.
"Transaction Documents" means the Loan Documents and the Subordinated
Note Documents.
"12% Debentures" means the 12% Senior Subordinated Debentures Due 2001
issued by the Borrower in the aggregate principal amount of up to $150,000,000
and governed by the terms of the 12% Debenture Indenture.
"12% Debenture Indenture" means the Indenture dated as of November 1,
1989 between the Borrower and IBJ Schroder Bank & Trust Company, as Trustee, as
such agreement may be amended, supplemented or otherwise modified from time to
time.
"12.25% Debentures" means the 12.25% Senior Subordinated Debentures Due
1997 issued by the Borrower in the aggregate principal amount of up to
$150,000,000 and governed by the terms of the 12.25% Debenture Indenture.
"12.25% Debenture Indenture" means the Indenture dated as of August 15,
1987 between the Borrower and IBJ Schroder Bank & Trust Company, as Trustee, as
amended by the First Supplemental Indenture thereto dated as of February 14,
1994, and as such agreement may be further amended, supplemented or otherwise
modified from time to time.
"Uniform Commercial Code" means the Uniform Commercial Code as enacted
in the State of New York, as it may be amended from time to time.
"Unrestricted Subsidiary" means any Subsidiary of the Borrower other
than a Restricted Subsidiary.
"Unsupported Surety Bond" means any surety bond or other similar
arrangement (including, without limitation, any Permitted Existing Surety Bond),
other than any such surety bond or arrangement with respect to which (x) the
credit exposure of the issuer thereof is fully covered by a Letter of Credit or
(y) applicable law would not create a Lien (other than a Lien junior in all
respects to the Agent's Liens on the Collateral under the Loan Documents) on any
Property of the Borrower or any of its Subsidiaries (including, without
limitation, any Collateral) for amounts owing to the issuer thereof.
"Unused Commitment Fee" is defined in Section 4.03(b).
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"Unused Commitment Fee Rate" means, as of any date, one half of one
percent (0.5%) per annum.
"Varo" is defined in the preamble hereto.
"Voting Stock" means, with respect to any Person, securities with
respect to any class or classes of Capital Stock of such Person entitling the
holders thereof (whether at all times or only so long as no senior class of
stock has voting power by reason of any contingency) to vote in the election of
members of the board of directors of such Person.
"Warren Pumps" is defined in the preamble hereto.
"Wholly Owned Subsidiary" means any direct, wholly owned Restricted
Subsidiary (other than any Guarantor).
"Working Capital" means, as at any date of determination, the excess,
if any, of (i) the Borrower's and its Subsidiaries' consolidated current assets
(excluding cash and Cash Equivalents) for such period over (ii) the Borrower's
and its Subsidiaries' consolidated current liabilities for such period, except
for (A) Indebtedness (including, without limitation, Revolving Credit
Obligations) to the extent such Indebtedness would otherwise increase such
consolidated current liabilities, and (B) all long-term pension, post-retiree
medical benefits and deferred tax assets and liabilities.
1.02. Computation of Time Periods. In this Agreement, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding". Periods of days referred to in this Agreement shall be
counted in calendar days unless Business Days are expressly prescribed. Any
period determined hereunder by reference to a month or months or year or years
shall end on the day in the relevant calendar month in the relevant year, if
applicable, immediately preceding the date numerically corresponding to the
first day of such period, provided that if such period commences on the last day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month during which such period is to end), such period
shall, unless otherwise expressly required by the other provisions of this
Agreement, end on the last day of the calendar month. For purposes of this
Agreement, if any "monthly anniversary" of a date (the "Earlier Date") falls in
a month (the "Later Month") in which there is no day which numerically
corresponds to the Earlier Date, such monthly anniversary shall, unless
otherwise expressly required by the other provisions of this Agreement, be
deemed to be the last day of the Later Month.
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1.03. Accounting Terms. Subject to Section 14.04, for purposes of this
Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP.
1.04. Other Definitional Provisions. References to "Articles",
"Sections", "subsections", "Schedules" and "Exhibits" shall be to Articles,
Sections, subsections, Schedules and Exhibits, respectively, of this Agreement
unless otherwise specifically provided. The words "hereof", "herein", and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
1.05. Other Terms. All other terms contained herein shall, unless the
context indicates otherwise, have the meanings assigned to such terms by the
Uniform Commercial Code to the extent the same are defined therein.
ARTICLE II
AMOUNTS AND TERMS OF LOANS
2.01. The Term Loans. (a) Amount of A Term Loans. Subject to the terms
and conditions set forth herein, each Lender with an A Term Loan Commitment (an
"A Term Loan Lender") hereby severally and not jointly agrees to make on the
Closing Date, a term loan, in Dollars, to the Borrower in an amount equal to
such Lender's A Term Loan Commitment (each individually, an "A Term Loan" and,
collectively, the "A Term Loans"). All A Term Loans shall be made by the A Term
Loan Lenders on the Closing Date simultaneously and proportionately to their
respective A Term Loan Pro Rata Shares.
(b) Amount of B Term Loans. Subject to the terms and conditions set
forth herein, each Lender with a B Term Loan Commitment (a "B Term Loan Lender")
hereby severally and not jointly agrees to make on the Closing Date, a term
loan, in Dollars, to the Borrower in an amount equal to such Lender's B Term
Loan Commitment (each individually, a "B Term Loan" and, collectively, the "B
Term Loans"). All B Term Loans shall be made by the B Term Loan Lenders on the
Closing Date simultaneously and proportionately to their respective B Term Loan
Pro Rata Shares.
(c) Amount of C Term Loans. Subject to the terms and conditions set
forth herein, each Lender with a C Term Loan Commitment (a "C Term Loan Lender")
hereby severally and not jointly agrees to make on the Closing Date, a term
loan, in Dollars, to the Borrower in an amount equal to such Lender's C Term
Loan Commitment (each individually, a "C Term Loan" and, collectively, the "C
Term Loans"). All C Term Loans shall be
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made by the C Term Loan Lenders on the Closing Date simultaneously and
proportionately to their respective C Term Loan Pro Rata Shares.
(d) Notice of Borrowing in respect of Term Loans. The Borrower shall
deliver to the Agent a Notice of Borrowing, signed by it, on the Closing Date.
Such Notice of Borrowing shall specify (i) the aggregate amount of the A Term
Loans, (ii) the aggregate amount of the B Term Loans, (iii) the aggregate amount
of the C Term Loans, and (iv) instructions for the disbursement of the proceeds
of the A Term Loans, the B Term Loans and the C Term Loans. The Term Loans shall
initially be Base Rate Loans and thereafter may be continued as Base Rate Loans
or converted into Eurodollar Rate Loans in the manner provided in Section
4.01(c) and subject to the conditions and limitations therein set forth and set
forth in Section 4.02. Any Notice of Borrowing given pursuant to this Section
2.01(d) shall be irrevocable.
(e) Making of Term Loans. (i) Promptly after receipt of the Notice of
Borrowing under Section 2.01(d) in respect of the Term Loans to be made on the
Closing Date, the Agent shall notify each Lender by telecopy of each of the
proposed Borrowings. Each A Term Loan Lender shall deposit an amount equal to
its A Term Loan Pro Rata Share of the A Term Loans, each B Term Loan Lender
shall deposit an amount equal to its B Term Loan Pro Rata Share of the B Term
Loans, and each C Term Loan Lender shall deposit an amount equal to its C Term
Loan Pro Rata Share of the C Term Loans, with the Agent at its office in New
York, New York, in immediately available funds, on the Closing Date specified in
the Notice of Borrowing. Subject to the fulfillment of the conditions precedent
set forth in Section 5.01, the Agent shall make the proceeds of such amounts
received by it available to the Borrower at the Agent's office in New York, New
York on the Closing Date and shall disburse such proceeds in accordance with the
Borrower's disbursement instructions set forth in such Notice of Borrowing. The
failure of any Lender to deposit the amount described above with the Agent on
the Closing Date shall not relieve any other Lender of its obligations hereunder
to make its A Term Loan, B Term Loan or C Term Loan, as the case may be, on the
Closing Date. No Lender shall be responsible for any failure by any other Lender
to perform its obligation to make any Term Loan hereunder nor shall the A Term
Loan Commitment, B Term Loan Commitment or C Term Loan Commitment of any Lender
be increased or decreased as a result of any such failure.
(ii) Unless the Agent shall have been notified by any Lender on the
Business Day immediately preceding the Closing Date in respect of any Borrowing
of Term Loans that such Lender does not intend to fund its Term Loan(s)
requested to be made on the Closing Date, the Agent may assume that such Lender
has funded its Term Loan(s) and is depositing the proceeds thereof with the
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Agent on the Closing Date, and the Agent in its sole discretion may, but shall
not be obligated to, disburse a corresponding amount to the Borrower on the
Closing Date. If the Term Loan proceeds corresponding to that amount are
advanced to the Borrower by the Agent but are not in fact deposited with the
Agent by such Lender on or prior to the Closing Date, such Lender agrees to pay,
and in addition the Borrower agrees to repay, to the Agent forthwith on demand
such corresponding amount, together with interest thereon, for each day from the
date such amount is disbursed to or for the benefit of the Borrower until the
date such amount is paid or repaid to the Agent, (A) in the case of the
Borrower, at the interest rate applicable to such Borrowing and (B) in the case
of such Lender, at the Federal Funds Rate for the first Business Day, and
thereafter at the interest rate applicable to such Borrowing. If such Lender
shall pay to the Agent the corresponding amount of its Term Loan(s), the amount
so paid shall constitute such Term Loan(s) of such Lender, and if both such
Lender and the Borrower shall pay and repay such corresponding amount, the Agent
shall promptly pay to the Borrower such corresponding amount. This Section
2.01(e)(ii) does not relieve any Lender of its obligation to make its Term
Loan(s) on the Closing Date.
(f) Repayment of the Term Loans. (i) A Term Loans. The A Term Loans
shall be repayable in twenty (20) consecutive quarterly installments beginning
on July 31, 1996 and continuing on the last day of each third month thereafter
up to and including April 30, 2001 and (x) each of the first nineteen (19)
installments shall be in the amount of $1,250,000, and (y) the twentieth
installment, due on April 30, 2001, shall be in the amount of the then
outstanding principal balance of the A Term Loans.
(ii) B Term Loans. The B Term Loans shall be repayable in sixteen (16)
consecutive quarterly installments beginning on July 31, 1997 and continuing on
the last day of each third month thereafter up to and including April 30, 2001
and (x) each of the first fifteen (15) installments shall be in the amount of
$2,187,500 and (y) the sixteenth installment, due on April 30, 2001, shall be in
the amount of the then outstanding principal balance of the B Term Loans.
(iii) C Term Loans. The C Term Loans shall be repayable in twenty-eight
(28) consecutive quarterly installments beginning on July 31, 1996 and
continuing on the last day of each third month thereafter up to and including
April 30, 2003 and (x) each of the first twenty (20) installments shall be in
the amount of $125,000, (y) each of the next seven (7) installments shall be in
the amount of $5,312,500 and (z) the twenty-eighth installment, due on April 30,
2003, shall be in the amount of the then outstanding principal balance of the C
Term Loans.
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(iv) In addition to the scheduled payments on the Term Loans, the
Borrower may make the voluntary prepayments described in Section 3.01(a)(i) and
shall make the mandatory prepayments prescribed in Section 3.01(b), for credit
against such scheduled payments on the Term Loans pursuant to Section 3.01(a)(i)
or Section 3.01(b)(v), as applicable. Any amount paid in respect of the Term
Loans may not be reborrowed.
(g) Use of Proceeds of Term Loans. The proceeds of the Term Loans may
be used to (i) redeem or defease in full the 12% Debentures and the 12.25%
Debentures, (ii) to refinance in full all obligations of the Borrower under the
Existing Credit Agreement and (iii) to pay Transaction Costs.
2.02. Revolving Credit Facility. (a) Subject to the terms and
conditions set forth herein, each Lender with a Revolving Credit Commitment
("Revolving Credit Lender") hereby severally and not jointly agrees to make
revolving loans, in Dollars (each individually, a "Revolving Loan" and,
collectively, the "Revolving Loans") to the Borrower from time to time during
the period from the Closing Date to the Business Day next preceding the
Revolving Credit Termination Date, in an amount not to exceed at any time such
Lender's Revolving Credit Pro Rata Share of the Revolving Credit Availability at
such time. All Revolving Loans comprising the same Borrowing hereunder shall be
made by such Lenders simultaneously and proportionately to their then respective
Revolving Credit Commitments. Subject to the provisions hereof (including,
without limitation, Section 5.02), the Borrower may repay any outstanding
Revolving Loan on any day which is a Business Day and any amounts so repaid may
be reborrowed, up to the amount available under this Section 2.02(a) at the time
of such Borrowing, until the Business Day next preceding the Revolving Credit
Termination Date.
(b) Notice of Borrowing. When the Borrower desires to borrow under
this Section 2.02, it shall deliver to the Agent an irrevocable Notice of
Borrowing, signed by it, (x) on the Closing Date, in the case of a Borrowing of
Revolving Loans on the Closing Date and (y) no later than 1:00 p.m. (New York
time) (I) on the Business Day immediately preceding the proposed Funding Date,
in the case of a Borrowing of Base Rate Loans after the Closing Date and (II) at
least three (3) Business Days in advance of the proposed Funding Date, in the
case of a Borrowing of Eurodollar Rate Loans after the Closing Date. Such Notice
of Borrowing shall specify (i) the proposed Funding Date (which shall be a
Business Day), (ii) the amount of the proposed Borrowing, (iii) the Revolving
Credit Availability as of the date of such Notice of Borrowing, (iv) whether the
proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans and (v)
in the case of Eurodollar Rate Loans, the requested Eurodollar Interest Period.
In lieu of delivering such a Notice of Borrowing (except with respect to a
Borrowing on the Closing
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Date), the Borrower shall give the Agent irrevocable telephonic notice of any
proposed Borrowing by 1:00 p.m. (I) on the Business Day immediately preceding
the proposed Funding Date, in the case of a Borrowing of Base Rate Loans after
the Closing Date and (II) on the third Business Day immediately preceding the
proposed Funding Date, in the case of a Borrowing of Eurodollar Rate Loans after
the Closing Date, and shall confirm such notice by delivery of the Notice of
Borrowing by telecopy to the Agent promptly, but in no event later than 3:00
p.m. (New York time) on the same day.
(c) Making of Revolving Loans and Certain Withdrawals from the Cash
Collateral Account. (i) Promptly after receipt of a Notice of Borrowing under
Section 2.02(b) (or telephonic notice in lieu thereof), the Agent shall notify
each Revolving Credit Lender by telex or telecopy, or other similar form of
transmission, of the proposed Borrowing and of any amount to be released from
the Cash Collateral Account in accordance with the immediately succeeding
sentence. To the extent funds are then available in the Cash Collateral Account,
each Notice of Borrowing under Section 2.02(b) (or telephonic notice in lieu
thereof) shall be deemed to be a request to withdraw funds from the Cash
Collateral Account for deposit in the Disbursement Account on the relevant
Funding Date in accordance with Section 11.03(c) in an aggregate amount equal to
the lesser of (1) the amount indicated in such Notice of Borrowing and (2) the
aggregate amount of funds then available in the Cash Collateral Account. Each
Revolving Credit Lender shall deposit an amount equal to its Revolving Credit
Pro Rata Share of an amount equal to (x) the amount requested by the Borrower to
be made as Revolving Loans minus (y) the amount (if any) specified by the Agent
as the amount to be withdrawn from the Cash Collateral Account with the Agent at
its office in New York, New York, in immediately available funds, (A) on the
Closing Date specified in the initial Notice of Borrowing and (B) not later than
1:00 p.m. (New York time) on any other proposed Funding Date. Subject (in the
case of clause (y) below only) to the fulfillment of the conditions precedent
set forth in Section 5.01 or Section 5.02, as applicable, the Agent shall make
the proceeds of (x) such amounts on deposit in the Cash Collateral Account
(unless a Blockage Notice shall have been delivered by the Agent to the
Borrower) and (y) such amounts received by the Agent from the Revolving Credit
Lenders available to the Borrower at the Agent's office in New York, New York on
such Funding Date (or on the date received if later than such Funding Date) and
shall disburse such proceeds to the Disbursement Account. The failure of any
Revolving Credit Lender to deposit the amount described above with the Agent on
the applicable Funding Date shall not relieve any other Revolving Credit Lender
of its obligations hereunder to make its Revolving Loan on such Funding Date. No
Lender shall be responsible for any failure by any other Lender to perform its
obligation to make a Revolving Loan hereunder nor shall the
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Revolving Credit Commitment of any Lender be increased or decreased as a result
of any such failure.
(ii) Unless the Agent shall have been notified by any Revolving Credit
Lender on the Business Day immediately preceding the applicable Funding Date in
respect of any Borrowing of Revolving Loans that such Lender does not intend to
fund its Revolving Loan requested to be made on such Funding Date, the Agent may
assume that such Lender has funded its Revolving Loan and is depositing the
proceeds thereof with the Agent on the Funding Date, and the Agent in its sole
discretion may, but shall not be obligated to, disburse a corresponding amount
to the Borrower on the Funding Date. If the Revolving Loan proceeds
corresponding to that amount are advanced to the Borrower by the Agent but are
not in fact deposited with the Agent by such Lender on or prior to the
applicable Funding Date, such Lender agrees to pay, and in addition the Borrower
agrees to repay, to the Agent forthwith on demand such corresponding amount,
together with interest thereon, for each day from the date such amount is
disbursed to or for the benefit of the Borrower until the date such amount is
paid or repaid to the Agent, (A) in the case of the Borrower, at the interest
rate applicable to such Borrowing and (B) in the case of such Lender, at the
Federal Funds Rate for the first Business Day, and thereafter at the interest
rate applicable to such Borrowing. If such Lender shall pay to the Agent the
corresponding amount, the amount so paid shall constitute such Lender's
Revolving Loan, and if both such Lender and the Borrower shall pay and repay
such corresponding amount, the Agent shall promptly pay to the Borrower such
corresponding amount. This Section 2.02(c)(ii) does not relieve any Revolving
Credit Lender of its obligation to make its Revolving Loan on any Funding Date.
(d) Use of Proceeds of Revolving Loans. The proceeds of the Revolving
Loans may be used to fund working capital in the ordinary course of the business
of the Borrower and its Subsidiaries and for other lawful general corporate
purposes not prohibited hereunder.
(e) Revolving Credit Termination Date. The Revolving Credit
Commitments shall terminate, and all outstanding Revolving Credit Obligations
shall be paid in full (or, in the case of unmatured Letter of Credit
Obligations, provision for payment in cash shall be made to the satisfaction of
the Issuing Banks and the Requisite Lenders), on the Revolving Credit
Termination Date. Each Lender's obligation to make Revolving Loans shall
terminate at the close of business in New York City on the Business Day next
preceding the Revolving Credit Termination Date.
2.03. Swing Loans. (a) Availability. Subject to the terms and
conditions set forth herein, the Swing Loan Bank may, in its sole discretion,
make loans (the "Swing Loans") to the
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Borrower, from time to time after the Closing Date and prior to the Revolving
Credit Termination Date, up to an aggregate principal amount at any one time
outstanding which shall not exceed an amount ("Swing Loan Availability") equal
to the lesser of (i) $5,000,000 and (ii) the Swing Loan Bank's Revolving Credit
Pro Rata Share of the Revolving Credit Availability at such time. The Swing Loan
Bank shall have no duty to make or to continue to make Swing Loans. All Swing
Loans shall be payable on demand with accrued interest thereon in accordance
with Section 2.03(d) and shall be secured as part of the Obligations by the
Collateral and shall otherwise be subject to all the terms and conditions
applicable to Revolving Loans, except that (x) Swing Loans shall not have a
minimum amount requirement and (y) all interest on the Swing Loans made by the
Swing Loan Bank shall be payable to the Swing Loan Bank solely for its own
account.
(b) Notice of Borrowing. When the Borrower desires to borrow under this
Section 2.03, it shall deliver to the Agent an irrevocable Notice of Borrowing,
signed by it, no later than 3:00 p.m. (New York time) on the day of the proposed
Borrowing of a Swing Loan. Such Notice of Borrowing shall specify (i) the date
of the proposed Borrowing (which shall be a Business Day), (ii) the amount of
the proposed Borrowing and (iii) instructions for the disbursement of the
proceeds of the proposed Borrowing. In lieu of delivering such a Notice of
Borrowing, the Borrower shall give the Agent irrevocable telephonic notice of
any proposed Borrowing by 3:00 p.m. on the day of the proposed Borrowing, and
shall confirm such notice by delivery of the Notice of Borrowing by telecopy to
the Agent promptly, but in no event later than 4:00 p.m. (New York time) on the
same day. All Swing Loans shall be Base Rate Loans.
(c) Making of Swing Loans and Certain Withdrawals from the Cash
Collateral Account. The Swing Loan Bank shall deposit the amount it intends to
fund, if any, in respect of the Swing Loans requested by the Borrower with the
Agent at its office in New York, New York not later than 3:00 p.m. (New York
time) in immediately available funds on the date of the proposed Borrowing
applicable thereto. To the extent funds are then available in the Cash
Collateral Account, each Notice of Borrowing under Section 2.03(b) (or
telephonic notice in lieu thereof) shall be deemed to be a request to withdraw
funds from the Cash Collateral Account for deposit in the Disbursement Account
on the relevant Funding Date in an aggregate amount equal to the lesser of (1)
the amount indicated in such Notice of Borrowing and (2) the aggregate amount of
funds then available in the Cash Collateral Account (with a corresponding deemed
reduction in the amount of the Swing Loan requested pursuant to such Notice of
Borrowing). The Swing Loan Bank shall not make any Swing Loan in the period
commencing on the first Business Day after it receives written notice from any
Lender that one or more of the conditions precedent contained in Section 5.02 is
not on such date
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satisfied, and ending when such conditions are satisfied, and the Swing Loan
Bank shall not otherwise be required to determine that, or take notice whether,
the conditions precedent set forth in Section 5.02 hereof have been satisfied in
connection with the making of any Swing Loan. Subject (with respect to clause
(y) only) to the preceding sentence, the Agent shall make the proceeds of (x)
such amounts on deposit in the Cash Collateral Account (unless a Blockage Notice
shall have been delivered by the Agent to the Borrower) and (y) each funding of
a Swing Loan available to the Borrower at the Agent's office in New York, New
York on the date of the proposed Borrowing and shall disburse such proceeds to
the Disbursement Account.
(d) Repayment of Swing Loans. The Borrower shall repay the outstanding
Swing Loans owing to the Swing Loan Bank (i) in accordance with Section
3.01(c)(ii), on a daily basis, to the extent funds are on deposit in the Cash
Collateral Account, (ii) upon demand by the Swing Loan Bank in accordance with
the third sentence of this Section 2.03(d) and (iii) on the Revolving Credit
Termination Date. In connection with the repayment of Swing Loans pursuant to
the preceding clause (i), the Borrower hereby irrevocably authorizes the Agent
to apply the withdrawn funds in accordance with such clause. In the event that
the Borrower fails to repay any Swing Loans, together with interest thereon, as
set forth in the first sentence of this paragraph, then, upon the request of the
Swing Loan Bank, each Revolving Credit Lender shall make Revolving Loans to the
Borrower (irrespective of the satisfaction of the conditions in Section 5.02 or
the requirement to deliver a Notice of Borrowing in Section 2.02(b), which
conditions and requirement such Lenders irrevocably waive) in an amount equal to
such Lender's Revolving Credit Pro Rata Share of the aggregate amount of the
Swing Loans then outstanding (net of that portion of such Swing Loan, if any,
owing to such Lender in its capacity as a Swing Loan Bank) after giving effect
to any prepayments and repayments made by the Borrower, and the Borrower hereby
authorizes the Agent to apply the proceeds of such Revolving Loans to the
repayment of such Swing Loans. The failure of any Revolving Credit Lender to
make available to the Agent its Revolving Credit Pro Rata Share of such
Revolving Loans shall not relieve any other Revolving Credit Lender of its
obligation hereunder to make available to the Agent such other Revolving Credit
Lender's Revolving Credit Pro Rata Share of such Revolving Loans on the date of
such request. No Lender shall be responsible for any failure by any other Lender
to perform its obligation to make such a Revolving Loan hereunder nor shall the
Revolving Credit Commitment of any Lender be increased or decreased as a result
of any such failure.
(e) Use of Proceeds of Swing Loans. The proceeds of the Swing Loans may
be used for working capital in the ordinary course of the Borrower's business
and for lawful corporate purposes of the Borrower not prohibited hereunder.
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2.04. Letters of Credit. Subject to the terms and conditions set forth
herein, each Issuing Bank hereby severally agrees to Issue for the account of
the Borrower one or more Letters of Credit, up to an aggregate face amount with
respect to Issuing Banks at any time outstanding equal to the Letter of Credit
Availability subject to the following provisions:
(a) Types and Amounts. An Issuing Bank shall not have any obligation
to Issue, and shall not Issue, any Letter of Credit at any time:
(i) if the aggregate Letter of Credit Obligations with respect to
such Issuing Bank, after giving effect to the Issuance of the Letter of
Credit requested hereunder, shall exceed (A) any limit imposed by law or
regulation upon such Issuing Bank or (B) an amount equal to the Letter of
Credit Availability divided by the total number of Issuing Banks;
(ii) if such Issuing Bank receives written notice (A) from the Agent
at or before 11:00 a.m. (New York time) on the date of the proposed
Issuance of such Letter of Credit that immediately after giving effect to
the Issuance of such Letter of Credit, the Revolving Credit Obligations at
such time would exceed the Maximum Revolving Credit Amount at such time, or
(B) from any of the Lenders at or before 11:00 a.m. (New York time) on the
date of the proposed Issuance of such Letter of Credit that one or more of
the conditions precedent contained in Sections 5.01 or 5.02, as applicable,
would not on such date be satisfied (or waived pursuant to Section 14.07),
unless such conditions are thereafter satisfied or waived and written
notice of such satisfaction or waiver is given to such Issuing Bank by the
Agent (and such Issuing Bank shall not otherwise be required to determine
that, or take notice whether, the conditions precedent set forth in
Sections 5.01 or 5.02, as applicable, have been satisfied or waived);
(iii) which has an expiration date later than the earlier of (A) the
date two (2) years after the date of issuance (without regard to any
automatic renewal provisions thereof) and (B) the Business Day next
preceding the Revolving Credit Termination Date;
(iv) with respect to such proposed Letters of Credit denominated in an
Alternative Currency, if such Issuing Bank receives written notice from the
Agent at or before 11:00 a.m. (New York time) on the date of the proposed
Issuance of such Letters of Credit that immediately after giving effect to
the Issuance of such
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Letter of Credit the Letter of Credit Obligations at such time in respect
of outstanding Letters of Credit denominated in Alternative Currency would
exceed $5,000,000; or
(v) which is in a currency other than Dollars or an Alternative
Currency.
(b) Conditions. In addition to being subject to the satisfaction of
the conditions precedent contained in Sections 5.01 and 5.02, as applicable, the
obligation of an Issuing Bank to Issue any Letter of Credit is subject to the
satisfaction in full of the following conditions:
(i) if such Issuing Bank so requests, the Borrower shall have
executed and delivered to such Issuing Bank and the Agent a Letter of
Credit Reimbursement Agreement and such other documents and materials as
may be required pursuant to the terms thereof;
(ii) the terms of the proposed Letter of Credit shall not be contrary
to such Issuing Bank's customary letter of credit practices (as determined
by such Issuing Bank in its sole discretion, exercised in a commercially
reasonable manner); and
(iii) if the beneficiary of the Letter of Credit is a foreign
Governmental Authority and the proposed Letter of Credit is intended to be
Issued in connection with such foreign Governmental Authority's purchase of
arms or armaments from the Borrower or its Subsidiaries, the Borrower or
its Subsidiaries, as the case may be, shall have complied with all
Requirements of Law with respect to such transaction including, without
limitation, the application for and receipt of all Permits from the United
States Government in connection therewith.
(c) Issuance of Letters of Credit. (i) The Borrower shall give an
Issuing Bank and the Agent written notice that it has selected such Issuing Bank
to Issue a Letter of Credit not later than 11:00 a.m. (New York time) on the
third (3rd) Business Day preceding the requested date for Issuance thereof
hereunder, or such shorter notice as may be acceptable to such Issuing Bank and
the Agent. Such notice shall be irrevocable unless and until (x) the applicable
Issuing Bank, in its sole discretion, permits the revocation thereof or (y) such
request is denied by the applicable Issuing Bank and shall specify (A) that the
requested Letter of Credit is either a Commercial Letter of Credit or a Standby
Letter of Credit, (B) the stated amount of the Letter of Credit requested, (C)
the effective date (which shall be a Business Day) of Issuance of such Letter of
Credit, (D) the date on which such Letter of Credit is to expire, (E) the Person
for
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whose benefit such Letter of Credit is to be Issued, (F) other relevant terms of
such Letter of Credit and (G) the amount of the then outstanding Letter of
Credit Obligations. Such Issuing Bank shall notify the Agent immediately upon
receipt of a written notice from the Borrower requesting that a Letter of Credit
be Issued and, upon the Agent's request therefor, send a copy of such notice to
the Agent.
(ii) Such Issuing Bank shall give the Agent written notice, or
telephonic notice confirmed promptly thereafter in writing, of the Issuance of a
Letter of Credit (which notice the Agent shall promptly transmit by telegram,
telex, telecopy, telephone or similar transmission to each Lender).
(d) Reimbursement Obligations; Duties of Issuing Banks. (i)
Notwithstanding any provisions to the contrary in any Letter of Credit
Reimbursement Agreement relating to any Letter of Credit Issued by an Issuing
Bank:
(A) the Borrower shall reimburse such Issuing Bank for amounts drawn
under such Letter of Credit pursuant to subsection (f) below, in Dollars,
no later than the date (the "Reimbursement Date") which is one (1) Business
Day after the Borrower receives written notice from such Issuing Bank that
payment has been made under such Letter of Credit by such Issuing Bank; and
(B) all Reimbursement Obligations with respect to any Letter of
Credit shall bear interest at the rate applicable in accordance with
Section 4.01(a) from the date of the relevant drawing under such Letter of
Credit until the Reimbursement Date and thereafter at the rate applicable
in accordance with Section 4.01(d).
(ii) Such Issuing Bank shall give the Agent written notice, or
telephonic notice confirmed promptly thereafter in writing, of all drawings
under a Letter of Credit Issued by it and the payment (or the failure to pay
when due) by the Borrower on account of a Reimbursement Obligation (which notice
the Agent shall promptly transmit by telegram, telex, telecopy or similar
transmission to each Revolving Credit Lender).
(iii) No action taken or omitted in good faith by an Issuing Bank under
or in connection with any Letter of Credit shall put such Issuing Bank under any
resulting liability to any Lender, the Borrower or, so long as such Letter of
Credit is not Issued in violation of Section 2.04(a), relieve any Revolving
Credit Lender of its obligations hereunder to such Issuing Bank. Solely as
between the Issuing Banks and such Lenders, in determining whether to pay under
any Letter of Credit, the respective Issuing Bank shall have no obligation to
the Revolving
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Credit Lenders other than to confirm that any documents required to be delivered
under a respective Letter of Credit appear to have been delivered and that they
appear on their face to comply with the requirements of such Letter of Credit.
(e) Participations. (i) Immediately upon Issuance by an Issuing Bank
of any Letter of Credit in accordance with the procedures set forth in this
Section 2.04, each Revolving Credit Lender shall be deemed to have irrevocably
and unconditionally purchased and received from such Issuing Bank, without
recourse or warranty, an undivided interest and participation in such Letter of
Credit to the extent of such Lender's Revolving Credit Pro Rata Share,
including, without limitation, all obligations of the Borrower with respect
thereto (other than amounts owing to the Issuing Bank under Section 2.04(g)) and
any security therefor and guaranty pertaining thereto.
(ii) If any Issuing Bank makes any payment under any Letter of Credit
and the Borrower does not repay such amount to such Issuing Bank on the
Reimbursement Date, such Issuing Bank shall promptly notify the Agent, which
shall promptly notify each Revolving Credit Lender, and each such Lender shall
promptly and unconditionally pay to the Agent for the account of such Issuing
Bank, in immediately available funds, the amount of such Lender's Revolving
Credit Pro Rata Share of such payment (net of that portion of such payment, if
any, made by such Lender in its capacity as an Issuing Bank), and the Agent
shall promptly pay to such Issuing Bank such amounts received by it, and any
other amounts received by the Agent for such Issuing Bank's account, pursuant to
this Section 2.04(e). All such payments shall constitute Revolving Loans made to
the Borrower pursuant to Section 2.02 (irrespective of the satisfaction of the
conditions in Section 5.02 or the requirement in Section 2.04(b) to deliver a
Notice of Borrowing which conditions and requirement, for the purpose of
refunding any Reimbursement Obligation owing to any Issuing Bank, the Revolving
Credit Lenders irrevocably waive) and shall thereupon cease to be unpaid
Reimbursement Obligations. If a Revolving Credit Lender does not make its
Revolving Credit Pro Rata Share of the amount of such payment available to the
Agent, such Lender agrees to pay to the Agent for the account of the Issuing
Bank, forthwith on demand, such amount together with interest thereon, for the
first Business Day after the date such payment was first due at the Federal
Funds Rate, and thereafter at the interest rate then applicable in accordance
with Section 4.01(a). The failure of any such Lender to make available to the
Agent for the account of an Issuing Bank its Revolving Credit Pro Rata Share of
any such payment shall neither relieve any other Revolving Credit Lender of its
obligation hereunder to make available to the Agent for the account of such
Issuing Bank such other Lender's Revolving Credit Pro Rata Share of any payment
on the date such payment is to be made nor increase the obligation of any other
Revolving Credit Lender to
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make such payment to the Agent. This Section does not relieve any Lender of its
obligation to purchase Revolving Credit Pro Rata Share participations in Letters
of Credit; nor does this Section relieve the Borrower of its obligation to pay
or repay any Issuing Bank funding its Revolving Credit Pro Rata Share of such
payment pursuant to this Section interest on the amount of such payment from
such date such payment is to be made until the date on which payment is repaid
in full.
(iii) Whenever an Issuing Bank receives a payment on account of a
Reimbursement Obligation, including any interest thereon, as to which any
Revolving Credit Lender has made a Revolving Loan pursuant to clause (ii) of
this Section, such Issuing Bank shall pay to the Agent such payment in
accordance with Section 3.02. Whenever the Agent receives (pursuant to the
immediately preceding sentence or otherwise) a payment on account of a
Reimbursement Obligation, including any interest thereon, as to which any
Revolving Credit Lender has made a Revolving Loan pursuant to clause (ii) of
this Section, the Agent shall distribute such payment in accordance with Section
3.02. Each such payment shall be made by such Issuing Bank or the Agent, as the
case may be, on the Business Day on which such Person receives the funds paid to
such Person pursuant to the preceding sentence, if received prior to 11:00 a.m.
(New York time) on such Business Day, and otherwise on the next succeeding
Business Day.
(iv) Upon the request of any Revolving Credit Lender, an Issuing Bank
shall furnish such Lender copies of any Letter of Credit or Letter of Credit
Reimbursement Agreement to which such Issuing Bank is party and such other
documentation as reasonably may be requested by such Lender.
(v) The obligations of a Revolving Credit Lender to make payments to
the Agent for the account of any Issuing Bank with respect to a Letter of Credit
shall be irrevocable, shall not be subject to any qualification or exception
whatsoever except willful misconduct or gross negligence of such Issuing Bank,
and shall be honored in accordance with this Article II (irrespective of the
satisfaction of the conditions described in Sections 5.01 and 5.02, as
applicable which conditions, for the purposes of the payment of Reimbursement
Obligations to the Issuing Bank, such Lenders irrevocably waive) under all
circumstances, including, without limitation, any of the following
circumstances:
(A) any lack of validity or enforceability hereof or of any of the
other Loan Documents;
(B) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a beneficiary named in a Letter
of Credit or any transferee of a beneficiary named in a Letter of
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Credit (or any Person for whom any such transferee may be acting), the
Agent, any Issuing Bank, any Lender, or any other Person, whether in
connection herewith, with any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transactions between the account party and beneficiary named in any Letter
of Credit);
(C) any draft, certificate or any other document presented under the
Letter of Credit having been determined to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(D) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents;
(E) any failure by such Issuing Bank to make any reports required
pursuant to Section 2.04(h) or the inaccuracy of any such report; or
(F) the occurrence of any Event of Default or Default.
(f) Payment of Reimbursement Obligations. (i) The Borrower
unconditionally agrees to pay to each Issuing Bank, in Dollars, the amount of
all Reimbursement Obligations, interest and other amounts payable to such
Issuing Bank under or in connection with the Letters of Credit when such amounts
are due and payable, irrespective of any claim, setoff, defense or other right
which the Borrower may have at any time against any Issuing Bank or any other
Person.
(ii) In the event any payment by the Borrower received by an Issuing
Bank with respect to a Letter of Credit and distributed by the Agent to the
Revolving Credit Lenders on account of their participation is thereafter set
aside, avoided or recovered from such Issuing Bank in connection with any
receivership, liquidation or bankruptcy proceeding, each such Lender which
received such distribution shall, upon demand by such Issuing Bank, contribute
such Lender's Revolving Credit Pro Rata Share of the amount set aside, avoided
or recovered together with interest at the rate required to be paid by such
Issuing Bank upon the amount required to be repaid by it.
(g) Issuing Bank Charges. The Borrower shall pay to each Issuing Bank,
solely for its own account, the standard charges assessed by such Issuing Bank
in connection with the issuance, administration, amendment and payment or
cancellation of Letters of Credit and such compensation in respect of such
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Letters of Credit for the Borrower's account as may be agreed upon by the
Borrower and such Issuing Bank from time to time.
(h) Issuing Bank Reporting Requirements. Each Issuing Bank shall, no
later than the first (1st) Business Day following the last day of each calendar
month, provide to the Agent and the Borrower separate schedules for Commercial
Letters of Credit and Standby Letters of Credit issued by it, in form and
substance reasonably satisfactory to the Agent, setting forth the aggregate
Letter of Credit Obligations outstanding to it at the end of each month and any
information requested by the Agent or the Borrower relating to the date of
issue, account party, amount, expiration date and reference number of each
Letter of Credit issued by it.
(i) Indemnification; Exoneration. (A) In addition to all other amounts
payable to an Issuing Bank, the Borrower hereby agrees to defend, indemnify, and
save the Agent, each Issuing Bank and each Lender harmless from and against any
and all claims, demands, liabilities, penalties, damages, losses (other than
loss of profits), costs, charges and expenses (including reasonable attorneys'
fees but excluding taxes) which the Agent, such Issuing Bank or such Lender may
incur or be subject to as a consequence, direct or indirect, of (i) the Issuance
of any Letter of Credit other than as a result of the gross negligence or
willful misconduct of the Issuing Bank, as determined by a court of competent
jurisdiction, or (ii) the failure of the Issuing Bank issuing a Letter of Credit
to honor a drawing under such Letter of Credit as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto government or Governmental Authority.
(B) As between the Borrower on the one hand and the Agent, the Lenders
and the Issuing Banks on the other hand, the Borrower assumes all risks of the
acts and omissions of, or misuse of Letters of Credit by, the respective
beneficiaries of the Letters of Credit. In furtherance and not in limitation of
the foregoing, subject to the provisions of the Letter of Credit Reimbursement
Agreements, the Agent, the Issuing Banks and the Lenders shall not be
responsible for: (i) the form, validity, legality, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and Issuance of the Letters of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity, legality or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(iii) failure of the beneficiary of a Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail,
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cable, telegraph, telex or otherwise, whether or not they be in cipher; (v)
errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) the misapplication
by the beneficiary of a Letter of Credit of the proceeds of any drawing under
such Letter of Credit; (viii) any litigation, proceeding or charges with respect
to such Letter of Credit; and (ix) any consequences arising from causes beyond
the control of the Agent, the Issuing Banks or the Lenders; provided that,
notwithstanding anything contained in this Agreement to the contrary, the
Borrower shall have a claim against the Agent, each Issuing Bank and each
Lender, and each such Person shall be liable to the Borrower, to the extent, but
only to the extent, of any direct, as opposed to consequential, punitive or
special, damages suffered by the Borrower which the Borrower proves (pursuant to
a non-appealable judgment of a court of competent jurisdiction) were caused by
(i) such Person's willful misconduct or gross negligence in determining whether
documents presented under a Letter of Credit comply with the terms thereof or
(ii) such Person's willful failure to pay, or gross negligence resulting in a
failure to pay, any drawing under a Letter of Credit after the presentation to
it by the beneficiary of a draft and any other applicable drawing documents, all
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing, the Agent, each Issuing Bank
and each Lender may accept documents that appear on their face to be in order,
without responsibility for further investigation.
(j) Obligations Several. The obligations of each Issuing Bank and each
Lender under this Section 2.04 are several and not joint, and no Issuing Bank or
Lender shall be responsible for the obligation to issue Letters of Credit or
participation obligation hereunder, respectively, of any other Issuing Bank or
Lender.
(k) Transitional Provisions. Schedule 2.04-K contains a schedule of
certain Letters of Credit (as defined in the Existing Credit Agreement). On the
Closing Date (i) such letters of credit, to the extent outstanding, shall be
automatically and without further action by the parties thereto converted to
Letters of Credit issued pursuant to this Section 2.04 for the account of the
Borrower and subject to the provisions hereof, and for this purpose the fees
specified in Section 2.04(g) and 4.03(a) shall be payable (in substitution for
any fees set forth in the Letter of Credit Reimbursement Agreements relating to
such letters of credit) as if such letters of credit had been issued on the
Closing Date, (ii) the face amount of such letters of credit shall be included
in the calculation of Letter of Credit Obligations, and (iii) all liabilities of
the Borrower with respect to such letters of credit shall constitute
Obligations.
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To the extent that any fees with respect to the letters of credit listed on
Schedule 2.04-K were owing under the Existing Credit Agreement in respect of any
time period prior to which such letter of credit shall be a Letter of Credit on
account of the provisions of this section, the Borrower shall have paid such
fees on or prior to the Closing Date.
2.05. Promise to Repay; Evidence of Indebtedness.
(a) Promise to Repay. The Borrower hereby agrees to pay when due the
principal amount of each Loan which is made to it, and further agrees to pay
when due all unpaid interest accrued thereon, in accordance with the terms
hereof and of the Notes. The Borrower shall execute and deliver to each Lender,
as applicable on the Closing Date, A Term Loan Notes, B Term Loan Notes, C Term
Loan Notes, Swing Loan Notes and Revolving Credit Notes, each in form and
substance acceptable to the Agent and such Lender, evidencing the Loans and
thereafter shall execute and deliver such other promissory notes as are
necessary to evidence the Loans owing to the Lenders after giving effect to any
assignment thereof pursuant to Section 14.01, all in form and substance
acceptable to the Agent and the parties to such assignment (all such promissory
notes and all amendments thereto, replacements thereof and substitutions
therefor being collectively referred to as the "Notes"; and "Note" means any one
of the Notes).
(b) Loan Account. Each Lender shall maintain in accordance with its
usual practice an account or accounts (a "Loan Account") evidencing the
Indebtedness of the Borrower to such Lender resulting from each Loan owing to
such Lender from time to time, including the amount of principal and interest
payable and paid to such Lender from time to time hereunder and under each of
the Notes.
2.06. Authorized Officers and Agents. On the Closing Date and from time
to time thereafter, the Borrower shall deliver to the Agent an Officer's
Certificate setting forth the names of the officers, employees and agents
authorized to request Revolving Loans, Swing Loans and Letters of Credit and
containing a specimen signature of each such officer, employee or agent. The
officers, employees and agents so authorized shall also be authorized to act for
the Borrower in respect of all other matters relating to the Loan Documents. The
Agent shall be entitled to rely conclusively on such officer's or employee's
authority to request such Loan or Letter of Credit until the Agent receives
written notice to the contrary. The Agent shall have no duty to verify the
authenticity of the signature appearing on any written Notice of Borrowing or
any other document, and, with respect to an oral request for such a Loan or
Letter of Credit, the Agent shall have no duty to verify the identity of any
person representing himself or herself as one of
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the officers, employees or agents authorized to make such request or otherwise
to act on behalf of the Borrower. None of the Agent, any Lender or any Issuing
Bank shall incur any liability to the Borrower or any other Person in acting
upon any telephonic notice referred to above which the Agent reasonably believes
to have been given by a duly authorized officer or other person authorized to
borrow on behalf of the Borrower.
ARTICLE III
PAYMENTS AND PREPAYMENTS
3.01. Prepayments; Reductions in Commitments.
(a) Voluntary Prepayments/Reductions. (i) Term Loans. Upon at least
five (5) Business Days' notice to the Agent (which the Agent shall promptly
transmit to each Lender as applicable), the Borrower may prepay any Base Rate
Loan which is a Term Loan, in whole or in part. Eurodollar Rate Loans may be
prepaid (A) in whole or in part on the expiration date of the then applicable
Eurodollar Interest Period and (B) upon payment of the amounts described in
Section 4.02(f), on any other Business Day upon at least five (5) Business Days'
prior written notice to the Agent (which the Agent shall promptly transmit to
each Lender as applicable). Unless the aggregate outstanding principal balance
of the Term Loans is to be prepaid in full, voluntary prepayments of the Term
Loans shall be in an aggregate minimum amount of $5,000,000 and integral
multiples of $250,000 in excess of that amount. Each voluntary prepayment of the
Term Loans shall be applied to the pro rata repayment of the A Term Loans, the B
Term Loans and the C Term Loans in inverse order of maturity. Any notice of
prepayment given to the Agent under this Section 3.01(a)(i) shall specify, in
accordance with the terms hereof, the date (which shall be a Business Day) of
prepayment, the aggregate principal amount of the prepayment and (subject to the
fourth sentence of this Section 3.01(a)(i)) any allocation of such amount among
Base Rate Loans, Eurodollar Rate Loans, A Term Loans, B Term Loans and C Term
Loans. When notice of prepayment is delivered as provided herein, the principal
amount of the Term Loans specified in the notice shall become due and payable on
the prepayment date specified in such notice.
(ii) Revolving Credit Commitment. The Borrower, upon at least five (5)
Business Days' prior written notice to the Agent (which the Agent shall promptly
transmit to each Lender), shall have the right, from time to time, to terminate
in whole or permanently reduce in part the Revolving Credit Commitments,
provided that the Borrower shall have made whatever payment may be required to
reduce the Revolving Credit Obligations to an amount less than or equal to the
Revolving Credit Commitments as reduced or terminated. Any partial reduction of
the Revolving Credit Commitments shall be in an aggregate minimum amount of
$5,000,000 and integral multiples of $1,000,000 in excess of that
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amount, and shall reduce the Revolving Credit Commitment of each Revolving
Credit Lender proportionately in accordance with its Revolving Credit Pro Rata
Share. Any notice of termination or reduction given to the Agent under this
Section 3.01(a)(ii) shall specify the date (which shall be a Business Day) of
such termination or reduction and, with respect to a partial reduction, the
aggregate principal amount thereof.
(iii) The prepayments and payments in respect of reductions and
terminations described in clauses (i) and (ii) of this Section 3.01(a) may be
made without premium or penalty (except as provided in Section 4.02(f)).
(b) Mandatory Prepayments of Loans.
(i) Immediately after the Borrower's or any of the Restricted
Subsidiaries' receipt of any Net Cash Proceeds on account of the sale,
assignment or other disposition of, loss or taking by condemnation or eminent
domain of, or damage to, all or any portion of the Property of the Borrower or
any Subsidiary of the Borrower (including, without limitation, the Discontinued
Operations), the Borrower shall make or cause to be made a mandatory prepayment
of the Loans. Each such prepayment shall be allocated and applied first, to the
repayment of the B Term Loans (based upon each B Term Loan Lender's B Term Loan
Pro Rata Share); second, to the pro rata repayment of the A Term Loans and the C
Term Loans (based upon each A Term Loan Lender's A Term Loan Pro Rata Share and
each C Term Loan Lender's C Term Loan Pro Rata Share, as the case may be); and
then, to any outstanding non-contingent Revolving Credit Obligations (without
any permanent reduction in the Revolving Credit Commitments), provided that
after the payment in full of the B Term Loans, Net Cash Proceeds on account of
the sale of the Non-Operating Assets (or, in the event the Non-Operating Assets
are sold prior to the Discontinued Operations, an equivalent amount of Net Cash
Proceeds arising from the sale of the Discontinued Operations) shall not be
applied to the remaining Term Loans but instead applied to any outstanding
non-contingent Revolving Credit Obligations (without any permanent reduction in
the Revolving Credit Commitments). Thereafter, to the extent that there are any
Net Cash Proceeds remaining, such funds shall be deposited in the Cash
Collateral Account to be held as Cash Collateral in accordance with this
Agreement. Prepayments of the A Term Loans, the B Term Loans and the C Term
Loans pursuant to this Section 3.01(b)(i) shall be applied to installments of
the A Term Loans, the B Term Loans and the C Term Loans specified in Section
2.01(f) in inverse order of their maturity.
(ii) Immediately after the Borrower's or any of its Subsidiaries'
receipt of any Net Cash Proceeds from the issuance of Capital Stock, any other
additions to the equity of the Borrower or any contributions to capital of the
Borrower, the
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Borrower shall make or cause to be made a mandatory prepayment of the Loans.
Fifty percent (50%) of such Net Cash Proceeds shall be allocated and applied
first, to the pro rata repayment of the A Term Loans, the B Term Loans and the C
Term Loans (based upon each A Term Loan Lender's A Term Loan Pro Rata Share,
each B Term Loan Lender's B Term Loan Pro Rata Share and each C Term Loan
Lender's C Term Loan Pro Rata Share, as the case may be); second, to any
remaining non-contingent Revolving Credit Obligations (without any permanent
reduction in the Revolving Credit Commitments); and then, to the Cash Collateral
Account to be held as Cash Collateral in accordance with this Agreement. The
remaining fifty percent (50%) of such Net Cash Proceeds shall be allocated and
applied first, if the Borrower elects to make such application and so long as no
Default or Event of Default shall have occurred and be continuing or would
otherwise result therefrom, promptly to repurchase or redeem the Subordinated
Notes; second, to any remaining non-contingent Revolving Credit Obligations
(without any permanent reduction in the Revolving Credit Commitments); and then,
to the Cash Collateral Account to be held as Cash Collateral or disbursed as
provided in this Agreement. Prepayments of the A Term Loans, B Term Loans and
the C Term Loans pursuant to this Section 3.01(b)(ii) shall be applied to
installments of the A Term Loans, the B Term Loans and the C Term Loans
specified in Section 2.01(f) in inverse order of their maturity.
(iii) As soon as practicable, and in any event within 90 days after the
end of each Cash Flow Period, unless the Term Loans shall have been paid in
full, (A) the Borrower shall calculate the Excess Cash Flow for such Cash Flow
Period and (B) the Borrower shall make a mandatory prepayment of the Loans equal
to seventy-five percent (75%) of such Excess Cash Flow; provided, however, that
the mandatory prepayment referred to in this clause (B) shall be reduced to
fifty percent (50%) of such Excess Cash Flow after the Borrower and its
Restricted Subsidiaries have received Net Cash Proceeds of at least $50,000,000
from the sale of Discontinued Operations. Each such prepayment shall be
allocated and applied first, to the pro rata repayment of the A Term Loans, the
B Term Loans and the C Term Loans (based upon each A Term Loan Lender's A Term
Loan Pro Rata Share, each B Term Loan Lender's B Term Loan Pro Rata Share and
each C Term Loan Lender's C Term Loan Pro Rata Share, as the case may be);
second, to any remaining non-contingent Revolving Credit Obligations (without
any permanent reduction in the Revolving Credit Commitments); and then, to the
Cash Collateral Account to be held as Cash Collateral in accordance with this
Agreement. Prepayments of the A Term Loans, B Term Loans and the C Term Loans
pursuant to this Section 3.01(b)(iii) shall be applied to installments of the A
Term Loans, the B Term Loans and the C Term Loans specified in Section 2.01(f)
in inverse order of their maturity.
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(iv) Immediately after the Borrower's or any of the Restricted
Subsidiaries' receipt of any Net Cash Proceeds from the issuance of Indebtedness
(other than the Subordinated Notes), the Borrower shall make or cause to be made
a mandatory prepayment of the Loans in the full amount of such Net Cash
Proceeds. Each such prepayment shall be allocated and applied first, to the pro
rata repayment of the A Term Loans, the B Term Loans and the C Term Loans (based
upon each A Term Loan Lender's A Term Loan Pro Rata Share, each B Term Loan
Lender's B Term Loan Pro Rata Share and each C Term Loan Lender's C Term Loan
Pro Rata Share); second, to any remaining non-contingent Revolving Credit
Obligations (without any permanent reduction in the Revolving Credit
Commitments); and then, to the Cash Collateral Account to be held as Cash
Collateral in accordance with this Agreement. Prepayments of the A Term Loans,
the B Term Loans and the C Term Loans pursuant to this Section 3.01(b)(iv) shall
be applied to installments of the A Term Loans, the B Term Loans and the C Term
Loans specified in Section 2.01(f) in inverse order of their maturity.
(v) Nothing in this Section 3.01(b) shall be construed to constitute
the Lenders' consent to any transaction which is not expressly permitted by
Article IX.
(vi) On the date any mandatory prepayment is received by the Agent
pursuant to clause (i), (ii), (iii) or (iv) above, such prepayment shall (to the
extent possible while still following the order of application set forth in the
relevant clause) be applied first to Base Rate Loans and then to any Eurodollar
Rate Loans with those Eurodollar Rate Loans which have earlier expiring
Eurodollar Interest Periods being repaid prior to those which have later
expiring Eurodollar Interest Periods.
(c) Mandatory Prepayments of Revolving Loans. (i) Immediately, if the
Revolving Credit Obligations are greater than the Maximum Revolving Credit
Amount, the Borrower shall make a mandatory repayment of the Revolving Credit
Obligations in an amount equal to such excess, such amount to be applied in
accordance with Section 3.02.
(ii) On a daily basis from funds on deposit in the Cash Collateral
Account, in each case prior to 1:00 p.m. on any Business Day, the Agent shall
transfer funds in accordance with Section 3.05 and thereby cause the Borrower to
make a mandatory repayment of the Revolving Credit Obligations on such Business
Day in an amount equal to first, any and all Non Pro Rata Loans on a pro rata
basis, second, any and all outstanding Swing Loans, and third, to the repayment
of the Revolving Credit Obligations then outstanding in accordance with the
provisions of Section 3.02. Notwithstanding the foregoing, unless the Borrower
otherwise elects, the repayments contemplated by this Section 3.01(c)(ii) shall
not be applied to any Eurodollar Rate Loan
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prior to the expiration of the Eurodollar Interest Period applicable to such
Loan.
3.02. Payments. (a) Manner and Time of Payment. All payments of
principal of and interest on the Loans and Reimbursement Obligations and other
Obligations (including, without limitation, fees and expenses) which are payable
to the Agent, the Lenders or any Issuing Bank shall be made without condition or
reservation of right, in immediately available funds, delivered to the Agent
(or, in the case of Reimbursement Obligations, to the pertinent Issuing Bank)
not later than 1:00 p.m. (New York time) on the date and at the place due, to
the Agent's Account (or such account of the Issuing Bank as it may designate, if
applicable). Payments in respect of any Swing Loan received by the Agent shall
be distributed to the Swing Loan Bank in accordance with Section 3.01(c)(ii),
payments in respect of any Revolving Loan received by the Agent shall be
distributed to each Lender in accordance with its Revolving Credit Pro Rata
Share in accordance with the provisions of Section 3.02(b), and payments in
respect of all A Term Loans, B Term Loans or C Term Loans, as the case may be,
received by the Agent, shall be distributed to each Lender in accordance with
its A Term Loan Pro Rata Share, B Term Loan Pro Rata Share or C Term Loan Pro
Rata Share, as the case may be, in accordance with the provisions of Section
2.01(f) on the date received, if received prior to 1:00 p.m., and (except in the
case of repayment of Swing Loans) on the next succeeding Business Day, if
received thereafter, by the Agent.
(b) Apportionment of Payments. (i) Subject to the provisions
of Section 3.02(b)(ii) and (v), except as otherwise provided herein (A) all
payments of principal and interest (I) in respect of outstanding A Term Loans
shall be allocated among such of the A Term Loan Lenders as are entitled
thereto, in proportion to their respective A Term Loan Pro Rata Shares, (II) in
respect of outstanding B Term Loans shall be allocated among such of the B Term
Loan Lenders as are entitled thereto, in proportion to their respective B Term
Loan Pro Rata Shares, (III) in respect of outstanding C Term Loans shall be
allocated among such of the C Term Loan Lenders as are entitled thereto, in
proportion to their respective C Term Loan Pro Rata Shares, and (IV) in respect
of outstanding Revolving Loans, and all payments in respect of Reimbursement
Obligations, shall be allocated among such of the Revolving Credit Lenders and
Issuing Banks as are entitled thereto, in proportion to their respective
Revolving Credit Pro Rata Shares and (B) all payments of fees and all other
payments in respect of any other Obligations shall be allocated among such of
the Lenders and Issuing Banks as are entitled thereto, in proportion to their
respective Pro Rata Shares. All such payments and any other amounts received by
the Agent from or for the benefit of the Borrower shall be applied first, to pay
principal of and interest on any portion of the Loans which the
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Agent may have advanced pursuant to the express provisions of this Agreement on
behalf of any Lender other than the Lender then acting as Agent, for which the
Agent has not then been reimbursed by such Lender or the Borrower, second, to
pay principal of and interest on any Protective Advance for which the Agent has
not then been paid by the Borrower or reimbursed by the Lenders, third, to pay
all other Obligations then due and payable and fourth, to the Cash Collateral
Account to be held as Cash Collateral in accordance with this Agreement. The
Borrower hereby grants to the Agent a security interest for the benefit of the
Agent, the Lenders and the Issuing Banks in all funds deposited in the Cash
Collateral Account. Except as set forth in Sections 3.01(a), (b) and (c) and
unless otherwise designated by the Borrower, all principal payments in respect
of outstanding Swing Loans, Revolving Loans or Term Loans, as the case may be,
shall be applied first, to repay outstanding Base Rate Loans, and then to repay
outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have
earlier expiring Eurodollar Interest Periods being repaid prior to those which
have later expiring Eurodollar Interest Periods.
(ii) After the occurrence and during the continuance of an Event of
Default and notwithstanding any order of application set forth in Section
3.01(b), the Agent may, and shall upon the acceleration of the Obligations
pursuant to Section 11.02(a), apply all payments in respect of any Obligations
and all proceeds of Collateral in the following order:
(A) first, to pay interest on, and then principal of, any portion of
the Revolving Loans which the Agent may have advanced on behalf of any
Lender for which the Agent has not then been reimbursed by such Lender or
the Borrower;
(B) second, to pay interest on and then principal of first any
outstanding Protective Advance and then any Swing Loan;
(C) third, to pay Obligations in respect of any expense reimbursements
or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any expense
reimbursements or indemnities then due to the Lenders and the Issuing
Banks;
(E) fifth, to pay Obligations in respect of any fees then due to the
Agent, the Lenders and the Issuing Banks;
(F) sixth, to pay interest due in respect of the Loans and
Reimbursement Obligations;
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(G) seventh, to pay or prepay (or, to the extent such Obligations are
contingent, provide Cash Collateral pursuant to Section 11.02(b) in respect
of) principal outstanding on Loans and all outstanding Letter of Credit
Obligations, and to the ratable payment of Interest Rate Contracts and
Currency Agreements to which any of the Lenders or any Affiliate of any of
the Lenders is a party and which do not contravene clauses (ix) and (x) of
Section 9.01;
(H) eighth, subject to clause ninth below, to the ratable payment of
all other Obligations; and
(I) ninth, to the ratable payment of Interest Rate Contracts and
Currency Agreements to which any of the Lenders or any Affiliate of the
Lenders is a party (other than the Interest Rate Contracts and Currency
Agreements referred to in clause seventh above);
provided, however, if sufficient funds are not available to fund all payments to
be made in respect of any of the Obligations described in any of the foregoing
clauses (A) through (H), the available funds being applied with respect to any
such Obligations referred to in any one of such clauses (unless otherwise
specified in such clause) shall be allocated to the payment of such Obligations
ratably, based on the proportion of the Agent's and each Lender's or Issuing
Bank's interest in the aggregate outstanding Obligations described in such
clauses.
The order of priority set forth in this Section 3.02(b)(ii) and the related
provisions hereof are set forth solely to determine the rights and priorities of
the Agent, the Lenders, the Issuing Banks and other Holders as among themselves.
The order of priority set forth in clauses (A) through (I) of this Section
3.02(b)(ii) may at any time and from time to time be changed by the agreement of
each of the Lenders without necessity of notice to or consent of or approval by
the Borrower, any Holder which is not a Lender or Issuing Bank, or any other
Person; provided, however, the order of priority set forth in clauses (A)
through (E) of this Section 3.02(b)(ii) may not be changed without the prior
written consent of the Agent.
(iii) All payments of principal on the Swing Loans, Protective
Advances, Reimbursement Obligations, interest, fees and other sums payable in
respect of the Revolving Loans may, at the option of the Agent, be paid from the
proceeds of the Revolving Loans. The Borrower hereby authorizes the Swing Loan
Bank to make pursuant to Section 2.03(a) and the Revolving Credit Lenders to
make pursuant to Section 2.02(a), from time to time in such Swing Loan Bank's or
Lender's discretion, Swing Loans or Revolving Loans, as the case may be, which
are in the amounts of any and all principal on the Swing Loans, interest, fees
and other sums payable in respect of the Revolving Loans, and further
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authorizes the Agent (A) to give the Revolving Credit Lenders notice of any
Borrowing with respect to such Revolving Loans and (B) to distribute the
proceeds of such Revolving Loans to pay such amounts. The Borrower agrees that
all such Revolving Loans so made shall be deemed to have been requested by it
and directs that all proceeds thereof shall be used to pay such amounts.
(iv) Subject to Section 3.01(b)(v), the Agent shall promptly distribute
to each Lender and Issuing Bank at its primary address set forth on the
appropriate signature page hereof or the signature page to the Assignment and
Acceptance by which it became a Lender or Issuing Bank, or to each Lender,
Issuing Bank or other Holder at such other address as such Lender, Issuing Bank
or other Holder may request in writing, such funds as such Person may be
entitled to receive, subject to the provisions of Article XIII; provided that,
as between the Holders and the Agent, the Agent shall under no circumstances be
bound to inquire into or determine the validity, scope or priority of any
interest or entitlement of any Holder and may suspend all payments or seek
appropriate relief (including, without limitation, instructions from the
Requisite Lenders or an action in the nature of interpleader) in the event of
any doubt or dispute as to any apportionment or distribution contemplated
hereby.
(v) If any Revolving Credit Lender fails to fund its Revolving Credit
Pro Rata Share of any Revolving Loan Borrowing requested by the Borrower which
such Lender is obligated to fund under the terms hereof (the funded portion of
such Revolving Loan Borrowing being hereinafter referred to as a "Non Pro Rata
Loan"), excluding any such Lender who has delivered to the Agent written notice
that one or more of the conditions precedent contained in Section 5.02 shall not
on the date of such request be satisfied and until such conditions are
satisfied, then until the earlier of such Lender's cure of such failure and the
termination of the Commitments, the proceeds of all amounts thereafter repaid to
the Agent by the Borrower and otherwise required to be applied to such Lender's
share of all other Obligations pursuant to the terms hereof shall be advanced to
the Borrower by the Agent on behalf of such Lender to cure, in full or in part,
such failure by such Lender ("Cure Loans"), but shall nevertheless be deemed to
have been paid to such Lender in satisfaction of such other Obligations.
Notwithstanding anything contained herein to the contrary:
(A) the foregoing provisions of this Section 3.02(b)(v) shall apply
only with respect to the proceeds of payments of Obligations;
(B) a Revolving Credit Lender shall be deemed to have cured its failure
to fund its Revolving Credit Pro Rata Share of any Revolving Loan at such
time as an
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amount equal to such Lender's original Revolving Credit Pro Rata Share of
the requested principal portion of such Revolving Loan is fully funded to
the Borrower, whether made by such Lender itself or by operation of the
terms of this Section 3.02(b)(v), and whether or not the Non Pro Rata Loan
with respect thereto has been repaid;
(C) Cure Loans shall bear interest at the rate applicable to the other
Revolving Loans comprising such Borrowing and shall be treated as Revolving
Loans comprising such Borrowing for all purposes herein;
(D) regardless of whether or not an Event of Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to its
desired application, all repayments of principal which, in accordance with
the other terms of this Section 3.02, would be applied to the outstanding
Revolving Loans shall be applied first, ratably to all Revolving Loans
constituting Non Pro Rata Loans, second, ratably to Revolving Loans other
than those constituting Non Pro Rata Loans or Cure Loans and, third,
ratably to Revolving Loans constituting Cure Loans; and
(E) no Lender shall be relieved of any obligation such Lender may have
to the Borrower under the terms of this Agreement as a result of the
provisions of this Section 3.02(b)(v).
(c) Payments on Non-Business Days. Whenever any payment to be made by
the Borrower hereunder or under the Notes is stated to be due on a day which is
not a Business Day, the payment shall instead be due on the next succeeding
Business Day (or, as set forth in Section 4.02(b)(iii), the next preceding
Business Day), and any such extension of time shall be included in the
computation of the payment of interest and fees hereunder.
3.03. Taxes. (a) Payments Free and Clear of Taxes. Except as otherwise
provided in Section 3.03(d) hereof, any and all payments by the Borrower
hereunder or under any Note or other document evidencing any Obligations shall
be made free and clear of and without reduction for any and all present or
future taxes, levies, imposts, deductions, charges and withhold- ings, and all
stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes
imposed on the value of Property, charges or levies which arise from the
execution, delivery or registration, or from payment or performance under, or
otherwise with respect to, any of the Loan Documents or the Commitments and all
other liabilities with respect thereto, excluding, in the case of each Lender,
each Issuing Bank and the Agent, taxes imposed on or measured by net or gross
income or receipts and capital and franchise taxes imposed on it by (i) the
United
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States (except withholding taxes imposed by Sections 1441, 1442 and 3406 of the
Internal Revenue Code to the extent provided in Section 3.03(d)(ii)), (ii) the
Governmental Authority of the jurisdiction in which such Lender's Applicable
Lending Office is located or any political subdivision thereof, (iii) the
Governmental Authority in which such Person is organized, managed and controlled
or any political subdivision thereof or (iv) the Governmental Authority of any
other jurisdiction in which such Person engages in business or any political
subdivision thereof, whether or not imposed in respect of payments by the
Borrower under the terms of this Agreement or any other Loan Documents or the
Commitments (all such non-excluded taxes, levies, imposts, deductions, charges
and withholdings being hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to withhold or deduct any Taxes from or in respect of
any sum payable hereunder or under any such Note or document to any Lender, any
Issuing Bank or the Agent, (x) the sum payable to such Lender, such Issuing Bank
or the Agent shall be increased as may be necessary so that after making all
required withholding or deductions of Taxes (including withholding or deductions
applicable to additional sums payable under this sentence) such Lender, such
Issuing Bank or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such withholding or deductions of Taxes been
made, (y) the Borrower shall make such withholding or deductions and (z) the
Borrower shall pay the full amount withheld or deducted to the relevant taxation
authority or other authority in accordance with applicable law. If any Taxes
described in the preceding sentence shall be or become applicable after the date
hereof to payments by the Borrower made to a Lender, an Issuing Bank or the
Agent, such Person shall use its best efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by the
Borrower (including the certificates and documents referred to in Section
3.03(d)(i) hereof) or to make, fund and maintain its Loans, and to make, fund
and maintain its obligations under the Letters of Credit, through another
Applicable Lending Office of such Person in another jurisdiction so as to
eliminate (or if not eliminate, reduce) such Borrower's liability hereunder, if
the making, funding or maintenance of such Loans or obligations under the
Letters of Credit through such other Applicable Lending Office of such Person
does not, in the judgment of such Person, otherwise materially adversely affect
such Loans, obligations under the Letters of Credit or such Person.
(b) Indemnification. (i) The Borrower shall indemnify each Lender, each
Issuing Bank and the Agent against, and reimburse each promptly after demand
therefor, the full amount of all Taxes (including, without limitation, any Taxes
imposed by any Governmental Authority on amounts payable under Section 3.03(a)
and any additional income or franchise taxes incurred as a result of such
additional amounts) paid by such Lender, such
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Issuing Bank or the Agent (as the case may be) or any of their respective
Affiliates and amounts paid by them in respect of any liability (including
penalties, interest, and out-of-pocket expenses paid to third parties but
excluding any penalties paid to a taxing Governmental Authority for late payment
of Taxes, which penalty resulted solely from the action or inaction of such
Person seeking indemnification under this Section 3.03(b)) arising therefrom or
with respect thereto. Each applicable Lender, Issuing Bank or the Agent, as the
case may be, shall submit to the Borrower a certificate, as to any additional
amount payable to any such Person under this Section 3.03(b), and the Borrower
shall pay such additional amount promptly after receipt of such certificate. In
determining such additional amount, such Person shall take into account and
reduce the amount otherwise payable by the Borrower pursuant to this subsection
(b), by an amount equal to any tax credits and other tax benefits associated
with the circumstances giving rise to the payment of such additional amount as
well as the payment thereof. Each Lender, the Agent and each Issuing Bank
agrees, within a reasonable time after receiving a written request from the
Borrower, to provide the Borrower with such certificates as are reasonably
required, and take such other actions as are reasonably necessary to claim such
exemptions as such Lender, the Agent or such Issuing Bank may be entitled to
claim in respect of all or a portion of any Taxes which are otherwise required
to be paid or deducted or withheld pursuant to this Section 3.03 in respect of
any payments hereunder or under the Notes.
(ii) If a Lender, Issuing Bank or the Agent shall become aware that it
is entitled to receive a refund in respect of Taxes, it shall promptly notify
the Borrower of the availability of such refund and shall, within 30 days after
receipt of a written request by the Borrower, apply for such refund at the
Borrower's expense. If any Lender, Issuing Bank or the Agent receives a refund
in respect of any Taxes for which it has received payment from the Borrower
under this Section, it shall promptly notify the Borrower of such refund and
shall, within 30 days after receipt of a request by the Borrower (or promptly
upon receipt, if the Borrower has requested application for such refund pursuant
hereto), repay such refund (including any interest thereon) to the Borrower net
of all out-of-pocket expenses of such Lender, Issuing Bank or the Agent,
provided that the Borrower, upon the request of such Person, agrees to return
such refund (plus penalties, interest or other charges) to such Person in the
event such Person is required to repay such refund.
(c) Receipts. If requested by the Agent, in its sole discretion, within
ten (10) days after such request, the Borrower shall furnish to the Agent, at
its address referred to in Section 14.08, the original or a certified copy of a
receipt or other documentation reasonably satisfactory to the Agent, evidencing
payment of any Taxes by the Borrower or any of its Subsidiaries.
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(d) Foreign Bank Certifications. (i) Each Lender or Issuing Bank that
is not created or organized under the laws of the United States or a political
subdivision thereof shall deliver to the Borrower and the Agent on the Closing
Date or the date on which such Lender or Issuing Bank becomes a Lender or
Issuing Bank pursuant to Section 14.01 hereof (A) a true and accurate
certificate, document or statement, as required by the Code or Treasury
regulations, properly executed in duplicate by a duly authorized officer of such
Lender or Issuing Bank to the effect that such Lender or Issuing Bank is
eligible to receive payments hereunder and under the Notes or other document
evidencing any Obligations without deduction or withholding of United States
federal income tax (x) under the provisions of an applicable tax treaty
concluded by the United States (in which case the certificate shall be
accompanied by two duly completed copies of IRS Form 1001 (or any successor or
substitute form or forms)) or (y) under Sections 1442(c) and 1442(a) of the
Internal Revenue Code (in which case the certificate shall be accompanied by two
duly completed copies of IRS Form 4224 (or any successor or substitute form or
forms)) or (B) in the case of a Lender or Issuing Bank claiming exemption from
United States withholding tax under section 871(h) or 881(c) of the Internal
Revenue Code with respect to payments of "portfolio interest" (a "Registered
Holder"), (i) a certificate representing that such Registered Holder is not a
"bank" for purposes of Section 881(c)(3) of the Internal Revenue Code, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Internal Revenue Code) of the Borrower and is not a controlled foreign
corporation related to the Borrower (within the meaning of Section 864(d)(4) of
the Internal Revenue Code) and (ii) two duly completed copies of IRS Form W-8.
Unless the Borrower and the Agent have received forms or other documents
reasonably satisfactory to them indicating that payments hereunder or under any
Note or other document evidencing any Obligations are not subject to United
States withholding tax, the Borrower or the Agent shall withhold taxes from such
payments at the applicable statutory rate in the case of payments to or for any
Lender or Issuing Bank created or organized under the laws of a jurisdiction
outside of the United States.
(ii) The Borrower shall not be required to pay any additional amounts
to any Lender, Issuing Bank or Agent in respect of United States withholding tax
pursuant to Section 3.03(d)(i) above (x) if the obligation to pay such
additional amounts would not have arisen but for a failure by such Person to
comply with the provisions of Section 3.03(d)(i) above for any reason (including
the failure of such Person to deliver the documents referred to in Section
3.03(d)(i) by reason of its inability to qualify for total exemption from United
States withholding tax (on interest only, in the case of a Registered Holder) or
a change in circumstances that renders such Person unable to so qualify) other
than (A) a change in applicable law,
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regulation or official interpretation thereof or (B) an amendment, modification
or revocation of any applicable tax treaty or a change in official position
regarding the application or interpretation thereof, in each case after the
later of the Closing Date or the date on which such Lender or Issuing Bank
becomes a Lender or Issuing Bank pursuant to Section 14.01 hereof or (y) to the
extent that the United States withholding tax relates to payments hereunder or
under the Notes or other documents evidencing any Obligations which are not
covered by the certificates referred to in Section 3.03(d)(i) above.
(iii) If, solely as a result of an event described in clauses (A) or
(B) of Section 3.03(d)(ii) after the Closing Date or the date on which such
Lender or Issuing Bank becomes a Lender or Issuing Bank pursuant to Section
14.01 hereof, such Person (A) is unable to provide to the Borrower a form
otherwise required to be delivered by it pursuant to Section 3.03(d)(i) above,
or (B) makes any payment or becomes liable to make any payment on account of any
Taxes with respect to payments by the Borrower hereunder, the Borrower may, at
its option, either (1) prepay the portion of the Loans or obligations under the
Letters of Credit held by such Lender or Issuing Bank in the manner set forth in
Section 3.01(a)(i) or (ii) hereof or (2) continue to make payments to such
Person under the terms of this Agreement, any Note or other document evidencing
any Obligation, which payments shall be made in accordance with Section 3.03(a)
above. If the Borrower exercises its option under clause (2) in the preceding
sentence to continue making payments, the Lender or Issuing Bank agrees to take
such steps as reasonably may be available to it under applicable tax laws and
any applicable tax treaty or convention (including, if legally available,
furnishing such certificate) to obtain an exemption from, or reduction (to the
lowest applicable rate) of, such Taxes, except to the extent that taking such a
step would, in the judgment of the Lender or Issuing Bank, materially adversely
affect such Loans, obligations under the Letters of Credit or such Person.
(iv) Each Lender and Issuing Bank further agrees to deliver to the
Borrower and the Agent from time to time, a true and accurate certificate
executed in duplicate by a duly authorized officer of such Lender or Issuing
Bank before or promptly upon the occurrence of any event requiring a change in
the most recent certificate previously delivered by it to the Borrower and the
Agent pursuant to this Section 3.03(d). Each certificate required to be
delivered pursuant to this Section 3.03(d)(iv) shall certify as to one of the
following:
(A) that such Lender or Issuing Bank can continue to receive payments
hereunder and under the Notes (of interest only, in the case of a
Registered Holder) without deduction or withholding of United States
federal income tax;
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(B) that such Lender or Issuing Bank cannot continue to receive
payments hereunder and under the Notes without deduction or withholding of
United States federal income tax as specified therein but does not require
additional payments pursuant to Section 3.03(a) because it is entitled to
recover the full amount of any such deduction or withholding from a source
other than the Borrower;
(C) that such Lender or Issuing Bank is no longer capable of
receiving payments hereunder and under the Notes without deduction or
withholding of United States federal income tax as specified therein by
reason of a change in law (including the Internal Revenue Code or
applicable tax treaty) after the later of the Closing Date or the date on
which a Lender or Issuing Bank became a Lender or Issuing Bank pursuant to
Section 14.01 and that it is not capable of recovering the full amount of
the same from a source other than the Borrower; or
(D) that such Lender or Issuing Bank is no longer capable of
receiving payments hereunder without deduction or withholding of United
States federal income tax as specified therein other than by reason of a
change described in the preceding clause (C).
3.04. Increased Capital. If after the date hereof any Lender or Issuing
Bank determines that (i) the adoption or implementation of or any change in or
in the interpretation or administration of any law or regulation or any
guideline or request from any central bank or other Governmental Authority or
quasi-governmental authority exercising jurisdiction, power or control over any
Lender, Issuing Bank or banks or financial institutions generally (whether or
not having the force of law), compliance with which affects or would affect the
amount of capital required or expected to be maintained by such Lender or
Issuing Bank or any corporation controlling such Lender or Issuing Bank and (ii)
the amount of such capital is increased by or based upon (A) the making or
maintenance by any Lender of its Loans, any Lender's participation in or
obligation to participate in the Loans, Letters of Credit or other advances made
hereunder or the existence of any Lender's obligation to make Loans or (B) the
issuance or maintenance by any Issuing Bank of, or the existence of any Issuing
Bank's obligation to issue, Letters of Credit, then, in any such case, upon
written demand by such Lender or Issuing Bank (with a copy of such demand to the
Agent), the Borrower shall immediately pay to the Agent for the account of such
Lender or Issuing Bank, from time to time as specified by such Lender or Issuing
Bank, additional amounts sufficient to compensate such Lender or Issuing Bank or
such corporation therefor. Such demand shall be accompanied by a statement as to
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the amount of such compensation and include a summary of the basis for such
demand with detailed calculations. Such statement shall be conclusive and
binding for all purposes, absent manifest error.
3.05. Cash Management. The Borrower has established the Lockboxes
listed on Schedule 6.01-AA and the Lockbox Accounts listed on Schedule 6.01-AA.
The Borrower has directed all account debtors of the Borrower and its Restricted
Subsidiaries to remit all payments in respect of the Receivables of the
Borrowers and such Subsidiaries and other Collateral directly to a Lockbox. The
contents of each Lockbox shall automatically be deposited into a Lockbox Account
or be emptied and deposited into a Lockbox Account by a representative of the
Lockbox Bank at which the applicable Lockbox Account has been established. Only
the Agent and the applicable Lockbox Bank, if any, shall have power of
withdrawal from each Lockbox and the related Lockbox Account and the Borrower
acknowledges that the Borrower shall not have any right, title or interest in
such Lockbox or Lockbox Account or any items deposited therein. The Borrower
agrees to cause all collections of Receivables, all proceeds of Collateral and
all Net Cash Proceeds now or hereafter received directly or indirectly by the
Borrower or any Subsidiary of the Borrower or in the possession of the Borrower
or any such Subsidiary to be held in trust for the Agent for the benefit of the
Lenders and, promptly upon receipt thereof, to be deposited into a Lockbox
Account or the Cash Collateral Account. All of the funds in the Lockbox Accounts
shall be automatically transferred into the Cash Collateral Account. Except as
expressly provided in this Agreement, the Agent alone shall have power of
withdrawal from the Cash Collateral Account and the Borrower acknowledges that,
except as expressly provided in this Agreement, the Borrower shall not have any
right, title or interest in the Cash Collateral Account or the amounts at any
time appearing to the credit of the Cash Collateral Account. Funds on deposit in
the Cash Collateral Account (other than any such funds being held in the Cash
Collateral Account pursuant to Section 8.07) first, shall be applied to the
outstanding Obligations in accordance with Section 3.01(c)(ii) (subject to the
applicable provisions of Section 3.02); second, if the Borrower shall have
provided the Agent with electronic or telephonic notice of the amount to be so
withdrawn (and no Blockage Notice shall have been delivered by the Agent to the
Borrower), shall be withdrawn and deposited in the Disbursement Account in an
amount equal to the lesser of (1) the amount indicated in such notice and (2)
the aggregate amount of funds then available in the Cash Collateral Account (it
being understood and agreed that such funds may be used for such purposes as
proceeds of Revolving Loans may be used in accordance with Section 2.02(d)); and
then, any funds remaining after such application, shall be invested in
accordance with account instructions applicable thereto agreed to by the
Borrower and the Agent.
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ARTICLE IV
INTEREST AND FEES
4.01. Interest on the Loans and Other Obligations. (a) Rate of
Interest. All Loans and the outstanding principal balance of all other
Obligations shall bear interest on the unpaid principal amount thereof from the
date such Loans are made and such other Obligations are due and payable until
paid in full, except as otherwise provided in Section 4.01(d), as follows:
(i) If a Base Rate Loan or such other Obligation, at a rate per annum
equal to the sum of (A) the Base Rate as in effect from time to time as
interest accrues, plus (B) the Applicable Base Rate Margin; or
(ii) If a Eurodollar Rate Loan, at a rate per annum equal to the sum of
(A) the Eurodollar Rate determined for the applicable Eurodollar Interest
Period, plus (B) the Applicable Eurodollar Rate Margin in effect on the
first day of such Eurodollar Interest Period.
The applicable basis for determining the rate of interest on the Loans shall be
selected by the Borrower at the time a Notice of Borrowing or a Notice of
Conversion/Continuation is delivered by the Borrower to the Agent; provided,
however, the Borrower may not select the Eurodollar Rate as the applicable basis
for determining the rate of interest on such a Loan (x) if such Loan is to be
made on the Closing Date, (y) if at the time of such selection an Event of
Default or Default would occur or has occurred and is continuing, or (z) prior
to the earlier of (A) the 30th day after the Closing Date and (B) the date upon
which the Agent shall determine in its sole discretion that the primary
syndication of the Commitments has been completed. If on any day any Loan is
outstanding with respect to which notice has not been timely delivered to the
Agent in accordance with the terms hereof specifying the basis for determining
the rate of interest on that day, then for that day interest on that Loan shall
be determined by reference to the Base Rate.
(b) Interest Payments. (i) Interest accrued on each Base Rate Loan
(other than Swing Loans) shall be payable in arrears (A) on the first Business
Day of the immediately succeeding calendar month, commencing on the first such
Business Day following the making of such Base Rate Loan, and (B) if not
theretofore paid in full, at maturity (whether by acceleration or otherwise) of
such Base Rate Loan, and interest accrued on Swing Loans shall be payable in
arrears on the first Business Day of the immediately succeeding calendar month.
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(ii) Interest accrued on each Eurodollar Rate Loan shall be payable in
arrears (A) on each Eurodollar Interest Payment Date applicable to such Loan,
(B) upon the payment or prepayment thereof in full or in part, with respect to
the principal amount prepaid, and (C) if not theretofore paid in full, at
maturity (whether by acceleration or otherwise) of such Eurodollar Rate Loan.
(iii) Interest accrued on the principal balance of all other
Obligations shall be payable in arrears (A) on the first Business Day of each
calendar month, commencing on the first such Business Day following the
incurrence of such Obligation, (B) upon repayment thereof in full or in part,
with respect to the principal amount prepaid, and (C) if not theretofore paid in
full, at the time such other Obligation becomes due and payable (whether by
acceleration or otherwise).
(c) Conversion or Continuation. (i) The Borrower shall have the
option (A) to convert at any time all or any part of outstanding Base Rate Loans
(other than Swing Loans) to Eurodollar Rate Loans, and the Eurodollar Interest
Periods of such converted Loans shall commence on the dates of such conversions;
(B) to convert all or any part of outstanding Eurodollar Rate Loans having
Eurodollar Interest Periods which expire on the same date to Base Rate Loans on
such expiration date; or (C) to continue all or any part of outstanding
Eurodollar Rate Loans having Eurodollar Interest Periods which expire on the
same date as Eurodollar Rate Loans, and the succeeding Eurodollar Interest
Period of such continued Loans shall commence on such expiration date; provided,
however, no such outstanding Loan may be continued as, or be converted into, a
Eurodollar Rate Loan (i) if the continuation of, or the conversion into, would
violate any of the provisions of Sections 4.02(a) or (b) or (ii) if an Event of
Default or Default would occur as a result of such continuation or conversion,
or has occurred and is continuing. Any conversion into or continuation of
Eurodollar Rate Loans under this Section 4.01(c) shall be in a minimum amount of
$5,000,000 and in integral multiples of $1,000,000 in excess of that amount.
(ii) To convert or continue a Loan under Section 4.01(c)(i), the
Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later
than 11:00 a.m. (New York time) at least three (3) Business Days in advance of
the proposed conversion/continuation date. A Notice of Conversion/Continuation
shall specify (A) the proposed conversion/continuation date (which shall be a
Business Day), (B) the principal amount of the Loan to be converted/continued,
(C) whether such Loan shall be converted and/or continued, and (D) in the case
of a conversion to, or continuation of, a Eurodollar Rate Loan, the requested
Eurodollar Interest Period. In lieu of delivering a Notice of
Conversion/Continuation, the Borrower may give the Agent tele-
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phonic notice of any proposed conversion/continuation by the time required under
this Section 4.01(c)(ii), and such notice shall be confirmed in writing
delivered to the Agent promptly (but in no event later than 5:00 p.m. (New York
time) on the same day). Promptly after receipt of a Notice of
Conversion/Continuation under this Section 4.01(c)(ii) (or telephonic notice in
lieu thereof), the Agent shall notify each Lender by telex or telecopy, or
other similar form of transmission, of the proposed conversion/continuation. Any
Notice of Conversion/Continuation for conversion to, or continuation of, a Loan
(or telephonic notice in lieu thereof) shall be irrevocable, and the Borrower
shall be bound to convert or continue in accordance therewith.
(d) Default Interest. Notwithstanding the rates of interest specified
in Section 4.01(a) or elsewhere herein, effective (i) immediately upon the
occurrence of any Default (other than a Non-Material Default), and for as long
thereafter as such Default shall be continuing, the principal balance of all
Loans and of all other Obligations, shall bear interest at a rate which is two
percent (2.0%) per annum in excess of the rate of interest applicable to such
Obligations from time to time.
(e) Computation of Interest. Interest on all Obligations shall be
computed on the basis of the actual number of days elapsed in the period during
which interest accrues and a year of 360 days. In computing interest on any
Loan, the date of the making of the Loan shall be included and the date of
payment shall be excluded; provided, however, if a Loan is repaid on the same
day on which it is made, one (1) day's interest shall be paid on such Loan.
(f) Changes; Legal Restrictions. If after the date hereof any Lender or
Issuing Bank determines that the adoption or implementation of or any change in
or in the interpretation or administration of any law or regulation or any
guideline or request from any central bank or other Governmental Authority or
quasi-governmental authority exercising jurisdiction, power or control over any
Lender, Issuing Bank or over banks or financial institutions generally (whether
or not having the force of law), compliance with which, in each case after the
date hereof:
(i) subjects a Lender or an Issuing Bank (or its Applicable Lending
Office) to charges (other than Taxes) of any kind which is applicable to
the Commitments of the Lenders and/or the Issuing Banks to make Eurodollar
Rate Loans or to issue and/or participate in Letters of Credit or changes
the basis of taxation of payments to that Lender or Issuing Bank of
principal, fees, interest, or any other amount payable hereunder with
respect to Eurodollar Rate Loans or Letters of Credit; or
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(ii) imposes, modifies, or holds applicable, any reserve (other than
reserves taken into account in calculating the Eurodollar Rate), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities (including those
pertaining to Letters of Credit) in or for the account of, advances or
loans by, commitments made, or other credit extended by, or any other
acquisition of funds by, a Lender or an Issuing Bank or any Applicable
Lending Office or Eurodollar Affiliate of that Lender or Issuing Bank;
and the result of any of the foregoing is to increase the cost to that Lender or
Issuing Bank of making, renewing or maintaining the Loans or its Commitments or
issuing or participating in the Letters of Credit or to reduce any amount
receivable thereunder; then, in any such case, upon written demand by such
Lender or Issuing Bank (with a copy of such demand to the Agent), the Borrower
shall immediately pay to the Agent for the account of such Lender or Issuing
Bank, from time to time as specified by such Lender or Issuing Bank, such amount
or amounts as may be necessary to compensate such Lender or Issuing Bank or its
Euro-dollar Affiliate for any such additional cost incurred or reduced amount
received. Such demand shall be accompanied by a statement as to the amount of
such compensation and include a summary of the basis for such demand. Such
statement shall be conclusive and binding for all purposes, absent manifest
error.
(g) Confirmation of Eurodollar Rate. Upon the reasonable request of
the Borrower from time to time, the Agent shall promptly provide to the Borrower
such information with respect to the applicable Eurodollar Rate as may be so
requested.
4.02. Special Provisions Governing Eurodollar Rate Loans. With respect
to Eurodollar Rate Loans:
(a) Amount of Eurodollar Rate Loans. Each Eurodollar Rate Loan shall
be for a minimum amount of $5,000,000 and in integral multiples of $1,000,000 in
excess of that amount.
(b) Determination of Eurodollar Interest Period. By giving notice as
set forth in Section 2.02(b) (with respect to a Borrowing of Eurodollar Rate
Loans) or Section 4.01(c) (with respect to a conversion into or continuation of
Eurodollar Rate Loans), the Borrower shall have the option, subject to the other
provisions of this Section 4.02, to select an interest period (each, a
"Eurodollar Interest Period") to apply to the Loans described in such notice,
subject to the following provisions:
(i) The Borrower may only select, as to a particular Borrowing of
Eurodollar Rate Loans, a Eurodollar
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Interest Period of either one, two, three or six months in duration;
(ii) In the case of immediately successive Euro-dollar Interest
Periods applicable to a Borrowing of Eurodollar Rate Loans, each successive
Eurodollar Interest Period shall commence on the day on which the next
preceding Eurodollar Interest Period expires;
(iii) If any Eurodollar Interest Period would otherwise expire on a day
which is not a Business Day, such Eurodollar Interest Period shall be
extended to expire on the next succeeding Business Day if the next
succeeding Business Day occurs in the same calendar month, and if there
shall be no succeeding Business Day in such calendar month, the Eurodollar
Interest Period shall expire on the immediately preceding Business Day;
(iv) The Borrower may not select a Eurodollar Interest Period as to
any Loan if such Eurodollar Interest Period terminates later than the
Revolving Credit Termination Date;
(v) The Borrower may not select a Eurodollar Interest Period with
respect to any portion of principal of a Loan which extends beyond a date
on which the Borrower is required to make a scheduled payment of such
portion of principal; and
(vi) There shall be no more than seven (7) Eurodollar Interest Periods
in effect at any one time.
(c) Determination of Interest Rate. As soon as practicable on the
second Business Day prior to the first day of each Eurodollar Interest Period
(the "Eurodollar Interest Rate Determination Date"), the Agent shall determine
(pursuant to the procedures set forth in the definition of "Eurodollar Rate")
the interest rate which shall apply to the Eurodollar Rate Loans for which an
interest rate is then being determined for the applicable Eurodollar Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Borrower and to each Lender. The Agent's
determination shall be presumed to be correct, absent manifest error, and shall
be binding upon the Borrower.
(d) Interest Rate Unascertainable, Inadequate or Unfair. In the event
that at least one (1) Business Day before the Eurodollar Interest Rate
Determination Date:
(i) the Agent determines that adequate and fair means do not exist
for ascertaining the applicable
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interest rates by reference to which the Eurodollar Rate then being
determined is to be fixed;
(ii) the Requisite Lenders advise the Agent that Dollar deposits in
the principal amounts of the Eurodollar Rate Loans comprising such
Borrowing are not generally available in the London interbank market for a
period equal to such Eurodollar Interest Period; or
(iii) the Requisite Lenders advise the Agent that the Eurodollar Rate
as determined by the Agent, after taking into account the adjustments for
reserves and increased costs provided for in Section 4.01(f), will not
adequately and fairly reflect the cost to such Lenders of funding their
Eurodollar Rate Loans;
then the Agent shall forthwith give notice thereof to the Borrower, whereupon
(until the Agent notifies the Borrower that the circumstances giving rise to
such suspension no longer exist) the right of the Borrower to elect to have
Loans bear interest based upon the Eurodollar Rate shall be suspended and each
outstanding Eurodollar Rate Loan shall be converted into a Base Rate Loan on the
last day of the then current Eurodollar Interest Period therefor, and any Notice
of Borrowing for which Revolving Loans have not then been made shall be deemed
to be a request for Base Rate Loans, notwithstanding any prior election by the
Borrower to the contrary.
(e) Illegality. (i) If at any time any Lender determines (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties) that the making or continuation of any Eurodollar Rate Loan
has become unlawful or impermissible by compliance by that Lender with any law,
governmental rule, regulation or order of any Governmental Authority (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful or would result in costs or penalties), then, and in any such event,
such Lender may give notice of that determination, in writing, to the Borrower
and the Agent, and the Agent shall promptly transmit the notice to each other
Lender.
(ii) When notice is given by a Lender under Section 4.02(e)(i), (A)
the Borrower's right to request from such Lender and such Lender's obligation,
if any, to make Eurodollar Rate Loans shall be immediately suspended, and such
Lender shall make a Base Rate Loan as part of any requested Borrowing of
Eurodollar Rate Loans and (B) if the affected Eurodollar Rate Loan or Loans are
then outstanding, the Borrower shall immediately, or if permitted by applicable
law, no later than the date permitted thereby, upon at least one (1) Business
Day's prior written notice to the Agent and the affected Lender, convert each
such Loan into a Base Rate Loan.
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(iii) If at any time after a Lender gives notice under Section
4.02(e)(i) such Lender determines that it may lawfully make Eurodollar Rate
Loans, such Lender shall promptly give notice of that determination, in writing,
to the Borrower and the Agent, and the Agent shall promptly transmit the notice
to each other Lender. The Borrower's right to request, and such Lender's
obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored.
(f) Compensation. In addition to all amounts required to be paid by the
Borrower pursuant to Section 4.01, the Borrower shall compensate each Lender,
upon demand, for all losses, expenses and liabilities (including, without
limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund or
maintain such Lender's Eurodollar Rate Loans to the Borrower but excluding any
loss of the Applicable Eurodollar Rate Margin on the relevant Loans) which that
Lender may sustain (i) if for any reason a Borrowing, conversion into or
continuation of Eurodollar Rate Loans does not occur on a date specified
therefor in a Notice of Borrowing or a Notice of Conversion/Continuation given
by the Borrower or in a telephonic request by it for borrowing or
conversion/continuation or a successive Eurodollar Interest Period does not
commence after notice therefor is given pursuant to Section 4.01(c), including,
without limitation, pursuant to Section 4.02(d), (ii) if for any reason any
Eurodollar Rate Loan is prepaid (including, without limitation, mandatorily
pursuant to Section 3.01) on a date which is not the last day of the applicable
Eurodollar Interest Period, (iii) as a consequence of a required conversion of a
Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events
indicated in Section 4.02(e) or (iv) as a consequence of any failure by the
Borrower to repay Eurodollar Rate Loans when required by the terms hereof. The
Lender making demand for such compensation shall deliver to the Borrower
concurrently with such demand a written statement in reasonable detail as to
such losses, expenses and liabilities, and this statement shall be presumed
conclusive as to the amount of compensation due to that Lender, absent manifest
error.
(g) Booking of Eurodollar Rate Loans. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of, its Eurodollar
Lending Office or Eurodollar Affiliate or its other offices or Affiliates. No
Lender shall be entitled, however, to receive any greater amount under Sections
3.03, 3.04, 4.01(f) or 4.02(f) as a result of the transfer of any such
Eurodollar Rate Loan to any office (other than such Eurodollar Lending Office)
or any Affiliate (other than such Eurodollar Affiliate) than such Lender would
have been entitled to receive immediately prior thereto, unless (i) the transfer
occurred at a time when circumstances giving rise to the claim for such greater
amount did not exist and (ii) such claim would have arisen even if such transfer
had not occurred.
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(h) Affiliates Not Obligated. No Eurodollar Affiliate or other
Affiliate of any Lender shall be deemed a party hereto or shall have any
liability or obligation hereunder.
4.03. Fees. (a) Letter of Credit Fee. In addition to any charges paid
pursuant to Section 2.04(g), the Borrower shall pay to the Agent for the account
of (i) the Issuing Bank with respect to any Letter of Credit issued by such
Issuing Bank, a fee at a per annum rate equal to one quarter of one percent
(0.25%) per annum, and (ii) the Revolving Credit Lenders in accordance with
their respective Revolving Credit Pro Rata Shares with respect to any Letter of
Credit issued by such Issuing Bank, a fee at a per annum rate equal to the
Applicable Eurodollar Rate Margin for the Revolving Credit Obligations less one
quarter of one percent (0.25%) per annum; in each case on the undrawn face
amount of such Letter of Credit, payable in arrears on the third Business Day of
each calendar quarter and on the date on which such Letter of Credit expires in
accordance with its terms. With respect to each Letter of Credit issued by such
Issuing Bank, the Borrower shall also pay to the Agent for the account of the
Revolving Credit Lenders in accordance with their respective Revolving Credit
Pro Rata Shares, during the occurrence and continuation of a Default (other than
a Non-Material Default), an additional fee in an amount equal to two percent
(2%) per annum on the undrawn face amount of such Letter of Credit, payable
monthly in arrears (on the first Business Day of each calendar month during the
continuation of such Default) and on the date, if any, on which such Default
terminates.
(b) Unused Commitment Fee. The Borrower shall pay to the Agent, for
the account of the Revolving Credit Lenders in accordance with their respective
Revolving Credit Pro Rata Shares, a fee (the "Unused Commitment Fee"), accruing
from the Closing Date at the Unused Commitment Fee Rate on the average amount by
which the Revolving Credit Commitments exceed the Revolving Credit Obligations
for the period commencing on the Closing Date and ending on the Revolving Credit
Termination Date, the accrued portion of such fee being payable (I) quarterly,
in arrears, on the third Business Day of the immediately succeeding calendar
quarter, commencing on the first such Business Day after the Closing Date and
(II) on the Revolving Credit Termination Date (whether or not such date occurs
on, before or after the Closing Date). Notwithstanding the foregoing, in the
event that any Lender fails to fund its Revolving Credit Pro Rata Share of any
Loan requested by the Borrower which such Lender is obligated to fund under the
terms hereof, such Lender shall not be entitled to any Unused Commitment Fees
with respect to its Commitment until such failure has been cured in accordance
with Section 3.02(b)(v)(B) and the Borrower shall not be required to pay any
Unused Commitment Fees to such Lender for such period.
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(c) Other Fees. The Borrower shall pay to Citibank such other fees as
are set forth in the Letter Agreement.
(d) Calculation and Payment of Fees. All of the above fees shall be
calculated on the basis of the actual number of days elapsed in a 360-day year.
All such fees shall be payable in addition to, and not in lieu of, interest,
expense reimbursements, indemnification and other Obligations. Fees shall be
payable to the Agent's Account in accordance with Section 3.02. All fees shall
be fully earned and nonrefundable when paid. All fees specified or referred to
herein due to the Agent, any Issuing Bank or any Lender, including, without
limitation, those referred to in this Section 4.03, shall bear interest, if not
paid when due, at the interest rate for Loans in accordance with Section
4.01(d), shall constitute Obligations and shall be secured by the Collateral.
ARTICLE V
CONDITIONS TO LOANS AND LETTERS OF CREDIT
5.01. Conditions Precedent to the Initial Loans and Letters of Credit.
The obligation of each Lender on the Closing Date to make its A Term Loan, B
Term Loan, C Term Loan and Revolving Loan requested to be made by it and the
agreement of each Issuing Bank on the Closing Date to issue Letters of Credit,
shall be subject to the satisfaction of all of the following conditions
precedent:
(a) Documents. The Agent (on behalf of itself and the Lenders) shall
have received on or before the Closing Date all of the following:
(i) this Agreement, the Notes and all other agreements, documents and
instruments described in the List of Closing Documents attached hereto and
made a part hereof as Exhibit E, each duly executed where appropriate and
in form and substance satisfactory to the Lenders; without limiting the
foregoing, the Borrower hereby directs its general counsel, Thomas Bird and
its special counsel, Weil, Gotshal & Manges, to prepare and deliver to the
Agent, the Lenders and the Issuing Banks, the opinions referred to in such
List of Closing Documents;
(ii) each of the Borrower's Projections, the Borrower's business plan
(as each is referred to in Section 6.01(h)) and the Borrower's interim
year-to-date consolidated and consolidating financial statements for Fiscal
Year 1995 and Fiscal Year 1996 up to and including March, each in form and
substance satisfactory to the Lenders, and a pro forma estimated
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balance sheet of the Borrower and its Subsidiaries as of the Closing Date,
as referred to in Section 6.01(h) giving effect to the transactions
contemplated in the Loan Documents, which balance sheet shall not be
materially less favorable, as determined by the Agent and the Lenders, than
the balance sheet as of December 31, 1995 of the Borrower and its
Subsidiaries; and
(iii) such additional documentation as the Agent may reasonably
request.
(b) Collateral Information; Perfection of Liens. The Agent shall have
received complete and accurate information from the Borrower with respect to the
name and the location of the principal place of business and chief executive
office for the Borrower and each Guarantor; all Uniform Commercial Code and
other filing and recording fees and taxes shall have been paid or duly provided
for; and the Agent shall have received evidence to the satisfaction of the
Lenders that all Liens granted to the Agent with respect to all Collateral are
valid and effective and, upon the filing of the duly executed Uniform Commercial
Code financing statements which shall have been delivered to the Agent, will be
perfected and of first priority, except as otherwise permitted under this
Agreement. All certificates representing Capital Stock included in the
Collateral (other than the certificates representing Capital Stock of certain
Unrestricted Subsidiaries, if and to the extent that such delivery is neither
necessary nor appropriate under applicable law for the perfection of a first
priority security interest in such Capital Stock) shall have been delivered to
the Agent (with duly executed stock powers, as appropriate) and all instruments
included in the Collateral shall have been delivered to the Agent (duly endorsed
to the Agent, as appropriate).
(c) No Legal Impediments. No law, regulation, order, judgment or
decree of any Governmental Authority shall, and the Agent shall not have
received any notice that any action, suit, investigation, litigation or
proceeding is pending or threatened in any court or before any arbitrator or
Governmental Authority which (i) purports to enjoin, prohibit, restrain or
otherwise affect the legality of (A) the making of the Loans on the Closing Date
or (B) the consummation of the transactions contemplated pursuant to the
Transaction Documents or (ii) which is reasonably likely to result in the
imposition of a Material Adverse Effect.
(d) No Change in Condition. No change in the condition (financial or
otherwise), business, performance, assets, operations or prospects of the
Borrower or any of its Subsidiaries shall have occurred since December 31, 1995,
which change has or is reasonably likely to have a Material Adverse Effect.
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(e) No Default. No Event of Default or Default shall have occurred and
be continuing or would result from the making of the Loans.
(f) Representations and Warranties. All of the representations and
warranties contained in Section 6.01 and in any of the other Loan Documents
shall be true and correct on and as of the Closing Date, both before and after
giving effect to the making of the Loans.
(g) Fees and Expenses Paid. There shall have been paid to the Agent,
for the account of the Lenders and the Agent, for their respective individual
accounts, all fees (including, without limitation, the Agent's legal fees) due
and payable on or before the Closing Date (including, without limitation, all
such fees described in the Letter Agreement), and all expenses (including,
without limitation, legal expenses) due and payable on or before the Closing
Date.
(h) Closing Date. The Closing Date shall have occurred on or before May
31, 1996.
(i) Consents, Etc. Except as set forth on Schedule 6.01-E, each of the
Borrower and the Borrower's Subsidiaries shall have received all consents and
authorizations required pursuant to any material Contractual Obligation with any
other Person and shall have obtained all consents and authorizations of, and
effected all notices to and filings with, any Governmental Authority as may be
necessary to allow each of the Borrower and the Borrower's Subsidiaries lawfully
(A) to execute, deliver and perform, in all material respects, their respective
obligations hereunder, under the other Loan Documents to which each of them is,
or shall be, a party and each other agreement or instrument to be executed and
delivered by each of them pursuant thereto or in connection therewith and (B) to
create and perfect the Liens on the Collateral to be owned by each of them in
the manner and for the purpose contemplated by the Loan Documents. No such
consent or authorization shall impose any conditions that are not acceptable to
the Lenders.
(j) Subordinated Note Offering. The Agent and the Lenders shall be
satisfied that the Borrower shall have (i) issued the Subordinated Notes on
terms and conditions and with an interest rate and rating satisfactory to the
Lenders and (ii) received net proceeds of at least $148,800,000 from the
issuance of the Subordinated Notes, and that the proceeds of the issuance of the
Subordinated Notes shall be applied solely to repay Indebtedness evidenced by,
or in respect of, principal and interest on the 12% Debentures and the 12.25%
Debentures, and to pay the Transaction Costs associated with the issuance of the
Subordinated Notes.
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(k) Defeasance of the 12% Debentures and the 12.25% Debentures. On the
Closing Date, (i) proceeds sufficient to fully defease, redeem or otherwise
retire all the outstanding 12% Debentures and the 12.25% Debentures, shall have
been deposited with the trustee (or its paying agent) in accordance with the
terms of the 12% Debenture Indenture and the 12.25% Debenture Indenture, as the
case may be.
(l) Termination of the Existing Credit Agreement. All Obligations under
and as defined in the Existing Credit Agreement shall have been paid in full
(other than such Obligations which by their terms shall survive the termination
of the Existing Credit Agreement) and the Existing Credit Agreement shall have
been terminated.
5.02. Conditions Precedent to All Subsequent Revolving Loans, Swing
Loans and Letters of Credit. The obligation of each Revolving Credit Lender to
make any Revolving Loan and of the Swing Loan Bank to make any Swing Loan,
requested to be made by it on any date after the Closing Date, and the agreement
of each Issuing Bank to Issue any Letter of Credit on any date after the Closing
Date is subject to the following conditions precedent as of each such date:
(a) Representations and Warranties. As of such date, both before and
after giving effect to the Loans to be made or the Letter of Credit to be Issued
on such date, all of the representations and warranties of the Borrower and the
Borrower's Subsidiaries contained in Section 6.01 and in any other Loan Document
(other than representations and warranties which expressly speak as of a
different date) shall be true and correct in all material respects.
(b) No Default. No Event of Default or Default shall have occurred and
be continuing or would result from the making of the requested Loan or the
issuance of the requested Letter of Credit.
(c) No Legal Impediments. No law, regulation, order, judgment or decree
of any Governmental Authority shall, and the Agent shall not have received from
such Lender, the Swing Loan Bank or such Issuing Bank, as the case may be,
notice that, in the judgment of such Person, litigation is pending or threatened
which is likely to enjoin, prohibit or restrain, or impose or result in the
imposition of any material adverse condition upon, (i) such Lender's making of
the requested Loan or participation in the requested Letter of Credit, (ii) the
Swing Loan Bank's making of the requested Swing Loan or (iii) such Issuing
Bank's issuance of the requested Letter of Credit.
(d) No Material Adverse Change. No change in the condition (financial
or otherwise), business, performance,
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properties, assets, operations or prospects of the Borrower or any of its
Subsidiaries since December 31, 1995 which has or is reasonably likely to have a
Material Adverse Effect.
Each submission by the Borrower to the Agent of a Notice of Borrowing with
respect to a Revolving Loan or Swing Loan, each acceptance by the Borrower of
the proceeds of each such Loan so made, each submission by the Borrower to an
Issuing Bank of a request for issuance of a Letter of Credit and the issuance of
such Letter of Credit, shall constitute a representation and warranty by the
Borrower as of the Funding Date in respect of such Revolving Loan, as of the
Swing Loan Funding Date in respect of such Swing Loan, and as of the date of
issuance of such Letter of Credit, that all the conditions contained in this
Section 5.02 have been satisfied or waived in accordance with Section 14.07.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01. Representations and Warranties of the Borrower. In order to
induce the Lenders and the Issuing Banks to enter into this Agreement and to
make the Loans and the other financial accommodations to the Borrower and to
issue the Letters of Credit described herein, each of the Guarantors and the
Borrower jointly and severally represents and warrants to each Lender, each
Issuing Bank and the Agent as of the Closing Date and thereafter on each date as
required by Section 5.02(a) that the following statements are true, correct and
complete:
(a) Organization; Corporate Powers. Each of the Borrower and the
Borrower's Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which failure to be so qualified
and in good standing has or is reasonably likely to have a Material Adverse
Effect and (iii) has all requisite corporate power and authority to own, operate
and encumber its Property and to conduct its business as presently conducted.
(b) Authority. (i) Each of the Borrower and the Borrower's
Subsidiaries has the requisite corporate power and authority to execute, deliver
and perform each of the Transaction Documents to which it is a party.
(ii) The execution, delivery and performance, as the case may be, of
each of the Transaction Documents which have been executed and to which any of
the Borrower or the Borrower's Subsidiaries is a party and the consummation of
the transactions contemplated thereby, have been duly approved by each of the
boards of directors and (to the extent required by law) the
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shareholders of the Borrower and the Borrower's Subsidiaries, respectively, and
such approvals have not been rescinded, revoked or modified in any manner. No
other corporate action or proceedings on the part of the Borrower or the
Borrower's Subsidiaries is necessary to consummate such transactions.
(iii) Each of the Transaction Documents to which the Borrower or the
Borrower's Subsidiaries is a party has been duly executed and delivered on
behalf of the Borrower or the Borrower's Subsidiaries, as the case may be, and
constitutes its legal, valid and binding obligation, enforceable against such
Person in accordance with its terms, is in full force and effect and no term or
condition thereof has been amended, modified or waived from the terms and
conditions contained in the Transaction Documents delivered to the Agent
pursuant to Sections 5.01(a) without the prior written consent of the Requisite
Lenders. No default, event of default or breach of any covenant by any of the
Borrower or the Borrower's Subsidiaries that is a party to the Transaction
Documents exists thereunder, which default, event of default or breach, as the
case may be, has or is reasonably likely to have a Material Adverse Effect.
(c) Subsidiaries; Ownership of Capital Stock. Schedule 6.01-C (i)
contains a diagram indicating the corporate structure of the Borrower, the
Borrower's Subsidiaries and any other Person in which the Borrower or any of the
Borrower's Subsidiaries holds an equity interest as of the Closing Date; and
(ii) accurately sets forth as of the Closing Date, (A) the correct legal name,
the jurisdiction of incorporation, and Employer Identification Number (if any)
of each of the Borrower and the Borrower's Subsidiaries, and the jurisdictions
in which each of the Borrower and the Borrower's Subsidiaries is qualified to
transact business as a foreign corporation, (B) the authorized, issued and
outstanding shares of each class of Capital Stock of each of the Guarantors and
the Significant Unrestricted Subsidiaries, and the owners of such shares, and a
summary statement of the Borrower's direct and indirect percentage ownership of
each of the Borrower's other Subsidiaries, and (C) a summary of the direct and
indirect partnership, joint venture, or other equity interests, if any, of the
Borrower and each Subsidiary of the Borrower in any Person that is not a
corporation. None of the issued and outstanding Capital Stock of the Borrower or
the Borrower's Subsidiaries is subject to any vesting, redemption, or repurchase
agreement, and there are no warrants or options other than the Permitted Stock
Options outstanding with respect to such Capital Stock or the Capital Stock of
the Borrower's Subsidiaries. The outstanding Capital Stock of each of the
Borrower's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is not Margin Stock. No Restricted Subsidiary which is not a
Guarantor and no Unrestricted Subsidiary, other than the Significant
Unrestricted Subsidiaries, has assets with a book
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value in excess of 5% of the book value of the assets of the Borrower and its
Subsidiaries (other than the Discontinued Operations) on a consolidated basis as
determined in accordance with GAAP. The book value of the assets on the Closing
Date of the Restricted Subsidiaries (other than the Guarantors) does not exceed
$2,000,000 in the aggregate (exclusive of the book value of the Real Property
being pledged to the Agent pursuant to Section 8.12(b)).
(d) No Conflict. The execution, delivery and performance of each of the
Transaction Documents to which the Borrower or any of the Borrower's
Subsidiaries is a party do not and shall not (i) conflict with the Constituent
Documents of the Borrower or any such Subsidiary, (ii) constitute a tortious
interference with any Contractual Obligation of any Person, (iii) except as set
forth on Schedule 6.01-D conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any material
Requirement of Law or under the 12% Debentures, the 12.25% Debentures, the 12%
Debenture Indenture, the 12.25% Debenture Indenture, the Subordinated Notes, the
Subordinated Note Indenture or any other material Contractual Obligation of the
Borrower or any such Subsidiary, or require the termination of any material
Contractual Obligation, (iv) result in or require the creation or imposition of
any Lien whatsoever upon any of the Property or assets of the Borrower or any
such Subsidiary, other than Liens contemplated by the Loan Documents, or (v)
require any approval of the Borrower's or any such Subsidiary's shareholders
that has not been obtained.
(e) Governmental Consents, etc. Except as set forth on Schedule 6.01-E,
the execution, delivery and performance of each of the Transaction Documents to
which the Borrower or any of the Borrower's Subsidiaries is a party do not and
shall not require any registration with, consent or approval of, or notice to,
or other action to, with or by any Governmental Authority, except (i) filings,
consents or notices which have been made, obtained or given, or, in a timely
manner, shall be made, obtained, or given and (ii) filings necessary to perfect
security interests in the Collateral. None of the Borrower or any of the
Borrower's Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, or the Investment Company
Act of 1940, or any other federal or state statute or regulation which limits
its ability to incur indebtedness or its ability to consummate the transactions
contemplated in the Transaction Documents.
(f) Accommodation Obligations; Contingencies. Except as set forth on
Schedule 1.01.3, none of the Borrower or any of the Borrower's Subsidiaries has
any Accommodation Obligation, contingent liability or liability for any Taxes,
long-term lease or commitment, not reflected in its financial statements or
disclosed in the notes thereto delivered to the Agent on or prior
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to the Closing Date or otherwise disclosed to the Agent and the Lenders in the
other Schedules hereto, which has or is reasonably likely to have a Material
Adverse Effect, except as permitted pursuant to Section 9.05 hereof.
(g) Restricted Junior Payments. None of the Borrower or any of the
Borrower's Subsidiaries has directly or indirectly declared, ordered, paid or
made or set apart any sum or Property for any Restricted Junior Payment or
agreed to do so, except as permitted pursuant to Section 9.06 hereof.
(h) Financial Position. Borrower's Projections, the pro forma estimated
balance sheet referred to in Section 5.01(a)(ii) and each of Borrower's business
plans and all other financial projections and related materials and documents
delivered to the Lenders pursuant hereto were prepared in good faith based upon
facts and assumptions that were reasonable in light of the then current and
foreseeable business conditions and prospects of the Borrower and represented
management's opinion of the Borrower's projected financial performance based on
the information available to the Borrower at the time so furnished.
(i) Litigation; Adverse Effects. Except as set forth in Schedule
6.01-I, and other than any such investigation, or series of related
investigations, of which none of the Borrower or the Guarantors, after due
inquiry, has any knowledge, there is no action, suit, audit, proceeding,
investigation or arbitration (or series of related actions, suits, proceedings,
investigations or arbitrations) before or by any Governmental Authority or
private arbitrator pending or, to the knowledge of the Borrower or any of the
Guarantors, threatened against the Borrower or any of the Borrower's
Subsidiaries or any Property of any of them (i) challenging the validity or the
enforceability of any of the Transaction Documents, (ii) which has a reasonable
possibility of resulting in or, if instituted after the Closing Date, is
reasonably likely to result in the suspension or debarment of the Borrower from
any federal government contracting program or (iii) which has or is reasonably
likely to have a Material Adverse Effect. None of the Borrower or any of the
Borrower's Subsidiaries is (A) in violation of any applicable Requirements of
Law which violation has or is reasonably likely to result in a Material Adverse
Effect, or (B) subject to or in default with respect to any final judgment,
writ, injunction, restraining order or order of any nature, decree, rule or
regulation of any court or Governmental Authority, in each case which has or is
reasonably likely to have a Material Adverse Effect.
(j) No Material Adverse Change. Since December 31, 1995 there has
occurred no event which has or is reasonably likely to have a Material Adverse
Effect.
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(k) Payment of Taxes. All tax returns and reports of each of the
Borrower and the Borrower's Subsidiaries required to be filed have been timely
filed (other than tax returns or reports for taxes, assessments, fees or other
governmental charges which are not material in amount), and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective Property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid other than such taxes,
assessments, fees and other governmental charges (i) which are being contested
in good faith by the Borrower or such Subsidiary, as the case may be, by
appropriate proceedings diligently instituted and conducted and without danger
of any material risk to the Collateral and (ii) with respect to which a reserve
or other appropriate provision, if any, as is required in conformity with GAAP
shall have been made. The Borrower has no knowledge of any proposed tax
assessment against the Borrower or any of the Borrower's Subsidiaries that has
or is reasonably likely to have a Material Adverse Effect.
(l) Performance. None of the Borrower or any of the Borrower's
Subsidiaries has received notice or has actual knowledge that (i) it is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any Contractual Obligation applicable to it
or (ii) any condition exists which, with the giving of notice or the lapse of
time or both, would constitute a default with respect to any such Contractual
Obligation, in each case, except where such default or defaults, if any, shall
not have or are not reasonably likely to have a Material Adverse Effect.
(m) Disclosure. The representations and warranties of each of the
Borrower and the Borrower's Subsidiaries contained in the Transaction Documents,
and all certificates and documents delivered to the Agent and the Lenders
pursuant to the terms hereof and the other Transaction Documents (including,
without limitation, the Offering Circular), do not contain any untrue statement
of a material fact or, to the Borrower's knowledge, omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading at the
date made. The Borrower has not intentionally withheld any fact from the Agent,
any Issuing Bank or any Lender in regard to any matter which has or is
reasonably likely to have a Material Adverse Effect.
(n) Requirements of Law. Each of the Borrower and the Borrower's
Subsidiaries is in compliance with all Requirements of Law applicable to it and
its business, in each case where the failure to so comply individually or in the
aggregate has or is reasonably likely to have a Material Adverse Effect.
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(o) Environmental Matters. Except as disclosed on Schedule 6.01-O and
except for matters, conditions, operations and noncompliance with Environmental,
Health or Safety Requirements of Law which would not reasonably be expected to
result in Liabilities and Costs to the Borrower or any of its Subsidiaries in
excess of $500,000 for any individual matter, condition, operation or instance
of noncompliance or for all such matters in excess of $2,000,000 in the
aggregate in any Fiscal Year:
(A) the operations of the Borrower and the Borrower's Subsidiaries
comply in all material respects with all applicable Environmental, Health
or Safety Requirements of Law;
(B) the Borrower and each of the Borrower's Subsidiaries have obtained
or have taken appropriate steps, as required by Environmental, Health or
Safety Requirements of Law, to obtain all environmental, health and safety
Permits necessary for their respective operations, and all such Permits are
in good standing and each of the Borrower and each of the Borrower's
Subsidiaries are currently in compliance in all material respects with all
terms and conditions of such Permits;
(C) none of the Borrower or the Borrower's Subsidiaries or any of their
respective operations or present or, to the knowledge of the Borrower, past
Property are subject to any investigation, judicial or administrative
proceeding, order, judgment, decree, settlement or other agreement alleging
or addressing (i) a material violation of any Environmental, Health or
Safety Requirement of Law; (ii) any Remedial Action; or (iii) any material
Claims arising from the Release or threatened Release of a Contaminant into
the environment nor has the Borrower or the Borrower's Subsidiaries
received any written notice of the foregoing;
(D) none of the Borrower or the Borrower's Subsidiaries is the owner or
operator of any Property which has any of the following:
(i) any present or, to the knowledge of the Borrower, any past
on-site treatment, recycling, storage or disposal of any hazardous
waste, as that term is defined under 40 C.F.R. Part 261 or any state or
local equivalent;
(ii) any present or, to the knowledge of the Borrower, any past
landfill, waste pile, underground storage tank or surface impoundment;
(iii) any friable asbestos-containing material; or
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(iv) any polychlorinated biphenyls ("PCBs") used in hydraulic
oils, electrical transformers or other Equipment;
(E) no Environmental Lien has attached to any Property of the Borrower
or any of the Borrower's Restricted Subsidiaries;
(F) none of the Borrower or the Borrower's Subsidiaries have filed any
notice under applicable Environmental, Health or Safety Requirements of Law
reporting any Releases of any Contaminants into the environment in
reportable quantities;
(G) to the knowledge of the Borrower, the Borrower and the Borrower's
Subsidiaries have not sent or directly arranged for the transport of any
waste to any site listed or proposed for listing on the National Priorities
List ("NPL") pursuant to CERCLA or on any similar state list of sites
requiring Remedial Action;
(H) none of the Borrower's or the Borrower's Subsidiaries' present
Property or, to Borrower's knowledge, past Property is listed or proposed
for listing on the NPL pursuant to CERCLA or on the Comprehensive
Environmental Response Compensation Liability Information System List
("CERCLIS") or any similar state list of sites requiring Remedial Action;
and
(I) none of the Borrower's or the Borrower's Restricted Subsidiaries is
subject to any Environmental Property Transfer Act or to the extent such
acts are applicable to any such property, the Borrower has fully complied
with the requirements of such acts as a result of the transactions covered
by this Agreement.
(p) ERISA Matters. Neither the Borrower nor any ERISA Affiliate
maintains or contributes to any Plan other than those listed on Schedule 6.01-P
hereto. Each Plan which is subject to Section 3(2) of ERISA and which is
intended to be qualified under Section 401(a) of the Internal Revenue Code as
currently in effect has been determined by the IRS to be so qualified, and each
trust related to any such Plan has been determined to be exempt from federal
income tax under Section 501(a) of the Internal Revenue Code as in effect on the
date specified in Schedule 6.01-P with respect to each such Plan. Neither
Borrower nor any ERISA Affiliate knows of any reason why such Plans or trusts
are no longer qualified or exempt following such determination by the IRS other
than changes in law as to which the period for amendment to comply with such
changes has not expired. Except as disclosed in Schedule 6.01-P, neither the
Borrower nor any of its Subsidiaries maintains or contributes to
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any employee welfare benefit plan within the meaning of Section 3(l) of ERISA
which provides benefits to employees after termination of employment other than
as required by Section 601 of ERISA. The Borrower and all of its ERISA
Affiliates are in compliance in all material respects with the obligations or
duties imposed on them by ERISA, the Internal Revenue Code and regulations
promulgated thereunder with respect to all Plans. No Benefit Plan has incurred
any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA
and 412(a) of the Internal Revenue Code) whether or not waived. Neither the
Borrower nor any ERISA Affiliate nor any fiduciary of any Plan which is not a
Multiemployer Plan (i) has engaged in a nonexempt prohibited transaction
described in Sections 406 of ERISA or 4975 of the Internal Revenue Code or (ii)
has taken or failed to take any action which would reasonably be expected to
constitute or result in a Termination Event. To the best knowledge of Borrower,
neither the Borrower nor any ERISA Affiliate reasonably expects any potential
liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA. Neither the
Borrower nor any ERISA Affiliate has incurred any liability to the PBGC which
remains outstanding, and there are no premium payments which have become due
which are delinquent. Schedule B to the most recent annual report filed with the
IRS with respect to each Benefit Plan and furnished to the Agent is complete and
accurate in all material respects. Since the date of each such Schedule B, there
has been no material adverse change in the funding status or financial condition
of the Benefit Plan relating to such Schedule B. Neither the Borrower nor any
ERISA Affiliate has (i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections
4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any
ERISA Affiliate has failed to make a required installment or any other required
payment under Section 412 of the Internal Revenue Code on or before the due date
for such installment or other payment. Neither the Borrower nor any ERISA
Affiliate is required to provide security to a Benefit Plan under Section
401(a)(29) of the Internal Revenue Code due to a Plan amendment that results in
an increase in current liability for the plan year. Except as disclosed on
Schedule 6.01-P the Borrower does not have, by reason of the transactions
contemplated hereby any obligation to make any payment to any employee pursuant
to any Plan or existing contract or arrangement. The Borrower has given to the
Agent copies of all of the following: each Benefit Plan and related trust
agreement (including all amendments to such Plan and trust) in existence, or for
which the Borrower or any ERISA Affiliate has taken any corporate action to
authorize the adoption thereof, as of the Closing Date and in respect of which
the Borrower or any ERISA Affiliate is currently an "employer" as defined in
section 3(5) of ERISA, and the most recent summary plan description, actuarial
report, determination letter issued by the IRS and Form 5500 filed in respect of
each such Benefit Plan in existence; a listing as of the Closing Date of all of
the
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Multiemployer Plans to which the Borrower or any ERISA Affiliate contributes
with the aggregate amount of the most recent annual contributions required to be
made by the Borrower and all ERISA Affiliates to each such Multiemployer Plan,
any information which has been provided to the Borrower or an ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan and the collective
bargaining agreement pursuant to which such contribution is required to be made;
each employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees of the Borrower or any of its Subsidiaries
after termination of employment other than as required by Section 601 of ERISA,
the most recent summary plan description for such plan and the aggregate amount
of the most recent annual payments made to terminated employees under each such
plan.
(q) Foreign Employee Benefit Matters. Each Foreign Employee Benefit
Plan maintained or contributed to by the Borrower, any of its Subsidiaries or
any ERISA Affiliate is in compliance in all material respects with all laws,
regulations and rules applicable thereto and the respective requirements of the
governing documents for such Plan. The aggregate of the liabilities to provide
all of the accrued benefits under any Foreign Pension Plan maintained or
contributed to by the Borrower, any of its Subsidiaries or any ERISA Affiliate
does not exceed the current fair market value of the assets held in the trust or
other funding vehicle for such Plan. With respect to any Foreign Employee
Benefit Plan maintained by the Borrower, any of its subsidiaries or any ERISA
Affiliate (other than a Foreign Pension Plan), reasonable reserves have been
established in accordance with prudent business practice or where required by
ordinary accounting practices in the jurisdiction in which such Plan is
maintained. The aggregate unfunded liabilities, after giving effect to any
reserves for such liabilities, with respect to such Plans is not reasonably
expected to result in a material liability. There are no actions, suits or
claims (other than routine claims for benefits) pending or threatened against
the Borrower, any of its subsidiaries or any ERISA Affiliate with respect to any
Foreign Employee Benefit Plan.
(r) Labor Matters. (i) Except as set forth in Schedule 6.01-R, as of
the Closing Date there is no collective bargaining agreement covering any of the
employees of the Borrower or any Subsidiary of the Borrower. To the knowledge of
the Borrower and each of the Guarantors, except as set forth on Schedule 6.01-R,
as of the Closing Date no attempt to organize the employees of Borrower or any
such Subsidiary is pending, threatened or planned.
(ii) Set forth in Schedule 6.01-R or Schedule 6.01-P, as the case may
be, is a list, as of the Closing Date, of all consulting agreements, executive
employment agreements, executive
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compensation plans, deferred compensation agreements, employee stock purchase
and stock option plans, severance plans, group life insurance, hospitalization
insurance or other employee benefit plans, of Borrower and its Subsidiaries
providing for benefits for employees of Borrower and its Subsidiaries, and which
impose material obligations on the Borrower and/or its Subsidiaries.
(s) Securities Activities. None of the Borrower or any of the
Borrower's Subsidiaries is engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.
(t) Solvency. After giving effect to the transactions contemplated in
the Transaction Documents and the Loans to be made on the Closing Date or such
other date as Loans requested hereunder are made and the disbursement of the
proceeds of such Loans pursuant to the Borrower's instructions, each of the
Borrower, the Guarantors and the Significant Unrestricted Subsidiaries is
Solvent.
(u) Patents, Trademarks, Permits, Etc.; Government Approvals. (i) The
Borrower and each of the Borrower's Subsidiaries own, are licensed or otherwise
have the lawful right to use, or have all permits and other governmental
approvals, patents, trademarks, service marks, trade names, copyrights,
technology, know-how and processes used in or necessary for the conduct of their
businesses as currently conducted except where the failure to do so would not
have or be reasonably likely to have a Material Adverse Effect. Except as set
forth on Schedule 6.01-U, no claims are pending or, to the best of Borrower's
knowledge following diligent inquiry, threatened that the Borrower or any of its
Subsidiaries is infringing upon the rights of any Person with respect to such
permits and other governmental approvals, patents, trademarks, service marks,
trade names, copyrights, technology, know-how and processes which infringement
would have or would be reasonably likely to have a Material Adverse Effect.
Except as set forth on Schedule 6.01-U, the Borrower has no knowledge after
diligent inquiry of any use by any Person that infringes upon the rights of the
Borrower in such patents, trademarks, service marks, trade names, copyrights,
technology, know-how and processes which infringement would have or would be
reasonably likely to have a Material Adverse Effect.
(ii) Except for Liens granted to the Agent for the benefit of the
Agent, the Issuing Banks, the Lenders and the other Holders, the transactions
contemplated by the Transaction Documents shall not impair the ownership of or
rights under (or the license or other right to use, as the case may be) any
permits and governmental approvals, patents, trademarks, service marks, trade
names, copyrights, technology, know-how or processes by the Borrower or any of
the Borrower's Subsidiaries in any
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manner which has or is reasonably likely to have a Material Adverse Effect.
(v) Assets and Properties. (i) Each of the Borrower and the Borrower's
Subsidiaries has good and, in the case of Real Property, marketable title to all
of its assets and Property (tangible and intangible) owned by it or a valid
leasehold interest in all of its leased assets (except insofar as marketability
may be limited by any laws or regulations of any Governmental Authority
affecting such assets), and all such assets and Property are free and clear of
all Liens, except Liens securing the Obligations and Liens permitted under
Section 9.03. Schedule 6.01-V contains a true and complete list of all of the
Real Property owned in fee simple by each of the Borrower and the Restricted
Subsidiaries as of the Closing Date, and a true and complete list of all Leases
in effect on the Closing Date and indicates whether such Real Property or Lease
has a book value in excess of $250,000. Substantially all of the assets and
Property owned by or leased to the Borrower and/or each such Subsidiary are in
adequate operating condition and repair, reasonable and ordinary wear and tear
excepted, and are free and clear of any known defects except such defects that
do not substantially interfere with the continued use thereof in the conduct of
normal operations. Except for Liens granted to the Agent for the benefit of the
Agent, the Issuing Banks, the Lenders and the other Holders, neither this
Agreement nor any other Transaction Document, nor any transaction contemplated
herein or therein, shall affect any right, title or interest of the Borrower or
any such Subsidiary in and to any of such assets in a manner that has or is
reasonably likely to have a Material Adverse Effect.
(ii) As to the parcels of Real Property with respect to which mortgages
are being delivered on the Closing Date, except as set forth on Schedule 6.01-V,
(A) the legal descriptions set forth on Schedule A of the current commitments
for title insurance insuring such mortgages fully and accurately describe the
boundaries of each such parcel; (B) there is full and lawful access to each such
parcel; (C) all of the mortgagor's improvements utilized with respect to each
such parcel are located within the boundaries of the relevant parcel; (D) the
improvements located on each such parcel do not encroach upon, and are in full
compliance with, boundary lines and setback requirements; and (E) no easements,
restrictions or encumbrances exist which underlie or interfere with the
improvements on any such parcel or the use or operation thereof, provided,
however, that any violation of items (A), (C), (D), or (E) above shall not be
considered a breach hereunder to the extent that such violation does not
adversely affect the marketability of the relevant parcel or the mortgagor's
continued operation of the relevant parcel in the manner in which it is
currently operated.
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(w) Insurance. Schedule 6.01-W accurately sets forth as of the Closing
Date all insurance policies and programs (including self-insurance programs)
currently in effect with respect to the respective assets and business of the
Borrower and its Subsidiaries, specifying for each such policy and program, (i)
the amount thereof, (ii) the risks insured against thereby, (iii) the name of
the insurer, if any, and each insured party thereunder, (iv) the policy or other
identification number thereof, (v) the expiration date thereof and (vi) the
annual premium, if any, with respect thereto. Such insurance policies and
programs are, except as disclosed on Schedule 6.01-W, in amounts sufficient to
cover the replacement value of the respective assets of the Borrower and its
Subsidiaries.
(x) Pledge of Collateral. The grant and perfection of the security
interests in the Capital Stock of each of the Borrower's Subsidiaries
constituting a portion of the Collateral for the benefit of the Agent, the
Issuing Banks, the Lenders and the other Holders, as contemplated by the terms
of the Loan Documents, is not made in violation of the registration provisions
of the Securities Act, any applicable provisions of other federal securities
laws, state securities or "Blue Sky" law, foreign securities law, or applicable
general corporation law or in violation of any other Requirement of Law.
(y) Transactions with Affiliates. Schedule 6.01-Y lists as of the
Closing Date each and every existing agreement and arrangement that any of the
Borrower or the Borrower's Subsidiaries has entered into with any of their
respective Affiliates (other than the Borrower and the Borrower's Subsidiaries).
(z) Subordinated Note Offering. All conditions precedent to, and all
consents necessary to permit, the consummation of the transactions contemplated
by the Subordinated Note Documents have been satisfied or delivered, or waived
with the prior written consent of the Lenders, and no action has been taken, or
to the best of the Borrower's knowledge, shall be taken by any competent
authority which restrains, prevents or imposes material adverse conditions upon,
or seeks to restrain, prevent or impose material adverse conditions upon, the
consummation of such transactions or the funding of any Loans hereunder. The
Obligations constitute Specified Senior Indebtedness (as defined in the
Subordinated Note Indenture).
(aa) Bank Accounts. Schedule 6.01-AA sets forth (i) all of the
Borrower's and the Restricted Subsidiaries' Lockbox Banks and (ii) as of the
Closing Date all other banks where an average daily balance of $100,000 or more
in funds is from time to time deposited, including the Lockboxes, their
addresses and the relevant account numbers. With respect to the banks referred
to in clause (ii) the Borrower has disclosed all
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additions, subtractions and modifications to such Schedule to the Agent and the
Lenders since the Closing Date.
(bb) Government Contracts. (i) None of the Borrower or any of the
Restricted Subsidiaries or any of their respective Affiliates is party to any
Contractual Obligation or subject to any Requirement of Law as a result of any
conflict of interest by, between or among the Borrower, such Restricted
Subsidiaries or such Affiliates or otherwise that would result in the
termination of any Material Government Contract or that would impose any
material limitation on the Borrower's or such Restricted Subsidiary's ability to
perform such contract or to continue its business as presently conducted and
proposed to be conducted.
(ii) No payment has been made by the Borrower or any of the Restricted
Subsidiaries, or by any Person authorized to act on their behalf, to any Person
in connection with any Government Contract of the Borrower or any such
Restricted Subsidiary, which payment would be a material violation of applicable
procurement laws or regulations or of the Foreign Corrupt Practices Act or of
any other material Requirement of Law.
(iii) With respect to each Government Contract to which the Borrower or
any of the Restricted Subsidiaries is a party: (A) all representations and
certifications executed, acknowledged or set forth in or pertaining to such
Government Contract were complete and correct in all material respects as of
their effective date, and the Borrower and each such Restricted Subsidiary have
complied in all material respects with all such representations and
certifications; (B) except as set forth on Schedule 6.01-BB, neither the United
States Government nor any prime contractor, subcontractor or other Person has
notified Borrower or any such Restricted Subsidiary, either orally or in
writing, that Borrower or such Restricted Subsidiary has breached or violated
any material Requirement of Law, or any material certificate, representation,
clause, provision or requirement pertaining to such Government Contract; and (C)
solely with respect to Material Government Contracts, no termination for
convenience, termination for default, cure notice or show cause notice is
currently in effect pertaining to any such Material Government Contract.
(iv) Except as set forth on Schedule 6.01-BB, (A) none of the Borrower
or any of the Restricted Subsidiaries or any of their respective directors,
officers or employees is (or during the last three (3) years has been) under
administrative, civil or criminal investigation or indictment by any
Governmental Authority, with respect to any alleged irregularity, misstatement
or omission arising under or relating to any Government Contract; and (B) during
the last three (3) years, none of the Borrower or
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any of the Restricted Subsidiaries has conducted or initiated any internal
investigation or made a voluntary disclosure to the United States Government,
with respect to any alleged irregularity, misstatement or omission arising under
or relating to a Government Contract, in each case except (with respect to such
matters occurring after the Closing Date) as disclosed to the Lenders.
(v) Except as set forth on Schedule 6.01-BB, there exist (A) no
outstanding material claims against the Borrower or any of the Restricted
Subsidiaries, either by the United States Government or by any prime contractor,
subcontractor, vendor or other third party, arising under or relating to any
Government Contract; and (B) no material disputes between the Borrower or any of
the Restricted Subsidiaries and the United States Government under the Contract
Disputes Act or any other Federal statute or between the Borrower or any of the
Restricted Subsidiaries and any prime contractor, subcontractor or vendor
arising under or relating to any such Government Contract.
(vi) None of the Borrower or any of the Restricted Subsidiaries or any
of their respective directors, officers or employees is (or during the last
three (3) years has been) suspended or debarred from doing business with the
United States Government or is (or during such period was) the subject of a
finding of nonresponsibility or ineligibility for United States Government
contracting.
(cc) Financial Statements. The (i) audited consolidated balance sheets
of the Borrower and its Subsidiaries as at December 31, 1995 and the related
audited consolidated statements of income and of cash flows for the year then
ended and (ii) unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as at March 31, 1996 and the related consolidated statements of
income and cash flows for the periods then ended, are complete and correct in
all material respects, have been prepared in accordance with GAAP, and present
fairly the consolidated financial position, results of operations and cash flows
of the Borrower and its Subsidiaries as at the dates and for the periods
indicated.
(dd) Defeasance of the 12% Debentures and the 12.25% Debentures. On the
Closing Date, (i) proceeds sufficient to fully defease, redeem or otherwise
retire each of the 12% Debentures and the 12.25% Debentures have been deposited
with the trustee (or its paying agent) in accordance with the 12% Debenture
Indenture and the 12.25% Debenture Indenture, respectively.
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ARTICLE VII
REPORTING COVENANTS
Each of the Guarantors and the Borrower jointly and severally covenants
and agrees that so long as any Commitment is outstanding and thereafter until
payment in full of all of the Loans and Letter of Credit Obligations, unless the
Requisite Lenders shall otherwise give prior written consent thereto:
7.01. Financial Statements. The Borrower shall maintain, and shall
cause each of the Borrower's Restricted Subsidiaries to maintain, a system of
accounting established and administered in accordance with sound business
practices to permit preparation of consolidated and consolidating financial
statements in conformity with GAAP, and each of the financial statements
described below shall be prepared from such system and records. The Borrower
shall deliver or cause to be delivered to the Agent and the Lenders:
(a) Monthly Reports. Within forty-five (45) days after the end of each
fiscal month in each Fiscal Year, the consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such period and the
related consolidated and consolidating statements of income and cash flow of the
Borrower and its Subsidiaries for such fiscal month and for the period from the
beginning of the then current Fiscal Year to the end of such fiscal month, and
for the corresponding period during the previous Fiscal Year, and (i) a
comparison of the statements of the year to date earnings and cash flow so
delivered to the corresponding statements for the corresponding period from the
previous Fiscal Year and (ii) a comparison of the balance sheets and the
statements of the year to date earnings and cash flow so delivered to the
business plan most recently delivered in accordance with subsection (d) below,
and a comparison of the statements of year to date earnings and cash flow so
delivered to the annual operating plan, all certified by the chief financial
officer of the Borrower as fairly presenting the consolidated and consolidating
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in accordance with GAAP, subject to normal year end adjustments.
(b) Annual Reports. Within ninety (90) days after the end of each
Fiscal Year, (i) audited financial statements of the Borrower and its
Subsidiaries and (ii) annual consolidating financial statements of the Borrower
and its Subsidiaries reported on (in the case of the financial statements
referred to in clause (i)) by independent certified public accountants of
recognized national standing acceptable to the Lenders, which report shall be
unqualified and shall state that such financial statements fairly present the
consolidated financial position of
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the Borrower and its Subsidiaries as at the dates indicated and the results of
their operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except for changes with which
such independent certified public accountants shall concur and which shall have
been disclosed in the notes to the financial statements) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards.
(c) Officer's Certificate. Together with each delivery of any financial
statement pursuant to paragraph (a) and (b) of this Section 7.01, an Officer's
Certificate of the Borrower substantially in the form of Exhibit F attached
hereto and made a part hereof (the "Compliance Certificate"), signed by the
Borrower's chief financial officer or controller and setting forth calculations
for the period then ended for Section 3.01(b) (including, without limitation,
calculations of Excess Cash Flow, Net Cash Proceeds, mandatory prepayments and
appropriate ratios for the pricing grids with respect to the Applicable Base
Rate Margin and the Applicable Eurodollar Rate Margin) and which demonstrate
compliance, when applicable, with the provisions of Article X.
(d) Business Plans; Financial Projections. Not later than thirty (30)
days after the beginning of each Fiscal Year, and containing substantially the
same types of financial information contained in the Borrower's Projections and
otherwise in form and detail satisfactory to the Lenders, (i) the annual
business plan of the Borrower for such Fiscal Year and (ii) forecasts prepared
by management of the Borrower for each fiscal month in such Fiscal Year, and on
an annual basis for each subsequent Fiscal Year through at least 2002, but in no
event covering a period of less than three Fiscal Years, containing a
consolidated balance sheet, an income statement and a consolidated statement of
cash flow.
(e) Accountant's Statement and Privity Letter. Together with each
delivery of the financial statements referred to in Section 7.01(b), a written
statement of the firm of independent certified public accountants of recognized
national standing acceptable to the Lenders giving the report stating (i) that
their audit examination has included a review of the terms hereof as it relates
to accounting matters and (ii) whether, in connection with their audit
examination, any condition or event which constitutes an Event of Default or
Default has come to their attention, and if such condition or event has come to
their attention, specifying the nature and period of existence thereof. The
statement referred to above shall be accompanied by (x) a copy of the management
letter or any similar report delivered to the Borrower or to any officer or
employee thereof by such accountants in connection with such financial
statements and (y)
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a reliance letter in form and substance reasonably satisfactory to the Agent
from the Borrower to such accountants. The Agent and each Lender may communicate
directly with such accountants.
7.02. Events of Default; Changes in Credit Ratings. Promptly upon (and,
in any event, within five (5) Business Days of) any of the chief executive
officer, chief operating officer, chief financial officer, treasurer or
controller of the Borrower obtaining knowledge (i) of any condition or event
which constitutes an Event of Default or Default, or becoming aware that any
Lender, any Issuing Bank or the Agent has given any written notice with respect
to a claimed Event of Default or Default, (ii) that any Person has given any
written notice to the Borrower or any Subsidiary of the Borrower or taken any
other action with respect to a claimed default or event or condition of the type
referred to in Section 11.01(e), (iii) of any condition or event which has or is
reasonably likely to have a Material Adverse Effect or materially and adversely
affect the value of, or the Agent's interest in, the Collateral or (iv) of any
decrease of the credit rating of the Subordinated Notes below that in effect on
the Closing Date, the Borrower shall deliver to the Agent and the Lenders an
Officer's Certificate specifying (A) the nature and period of existence of any
such claimed default, Event of Default, Default, condition, event or change, (B)
the notice given or action taken by such Person in connection therewith, and (C)
other than in the case of clause (iv), the remedial action the Borrower has
taken, is taking and proposes to take with respect thereto.
7.03. Lawsuits. (i) Promptly upon (and, in any event, within five (5)
Business Days of) the Borrower obtaining knowledge of the institution of, or
written threat of, any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Borrower or any of the Borrower's
Subsidiaries or any Property of the Borrower or any of the Borrower's
Subsidiaries not previously disclosed pursuant to Section 6.01(i), which action,
suit, proceeding, governmental investigation or arbitration exposes, or in the
case of multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances which
expose, in the Borrower's reasonable judgment, the Borrower or any of the
Borrower's Subsidiaries to liability in an amount aggregating $5,000,000 or
more, the Borrower shall give written notice thereof to the Agent and the
Lenders and provide such other information as may be reasonably available to
enable each Lender and the Agent and its counsel to evaluate such matters; and
(ii) in addition to the requirements set forth in clause (i) of this Section
7.03, the Borrower upon request of the Agent or the Requisite Lenders shall
promptly give written notice of the current status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered previously pursuant to clause (i) above and
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provide such other information as may be reasonably available to it to enable
each Lender and the Agent and its counsel to evaluate such matters.
7.04. Insurance. As soon as practicable and in any event by no later
than June 1 of each Fiscal Year beginning with Fiscal Year 1997, the Borrower
shall deliver to the Agent and the Lenders (i) a report in form and substance
satisfactory to the Agents and the Lenders outlining all material insurance
coverage (including any self-insurance provided by the Borrower) maintained as
of the date of such report by the Borrower and its Subsidiaries and the duration
of such coverage and (ii) to the extent such insurance coverage is not provided
by the Borrower, an insurance broker's statement that all premiums then due and
payable with respect to such coverage have been paid.
7.05. ERISA Notices. The Borrower shall deliver or cause to be
delivered to the Agent, at the Borrower's expense, the following information and
notices as soon as reasonably possible, and in any event:
(i) within ten (10) Business Days after the Borrower or any ERISA
Affiliate knows or has reason to know that a Termination Event has
occurred, a written statement of the chief financial officer of the
Borrower describing such Termination Event and the action, if any, which
the Borrower or any ERISA Affiliate has taken, is taking or proposes to
take with respect thereto, and when known, any action taken or threatened
by the IRS, DOL or PBGC with respect thereto;
(ii) within fifteen (15) Business Days after the Borrower or any ERISA
Affiliate knows or has reason to know that a prohibited transaction (as
defined in Sections 406 of ERISA and 4975 of the Internal Revenue Code) has
occurred, a statement of the chief financial officer of the Borrower
describing such transaction and the action which the Borrower or any ERISA
Affiliate has taken, is taking or proposes to take with respect thereto;
(iii) within ten (10) Business Days after the filing thereof with the
DOL, IRS or PBGC, copies of each annual report (form 5500 series),
including Schedule B thereto, filed with respect to each Benefit Plan;
(iv) within ten (10) Business Days after receipt by the Borrower or
any ERISA Affiliate of each actuarial report for any Benefit Plan or
Multiemployer Plan and each annual report for any Multiemployer Plan,
copies of each such report;
(v) within three (3) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request
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filed with respect to any Benefit Plan and all communications received by
the Borrower or any ERISA Affiliate with respect to such request;
(vi) within five (5) Business Days upon the occurrence thereof,
notification of any material increase in the benefits of any existing Plan
or the establishment of any new Plan or the commencement of contributions
to any Plan to which the Borrower or any ERISA Affiliate was not previously
contributing;
(vii) within three (3) Business Days after receipt by the Borrower or
any ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or
to have a trustee appointed to administer a Benefit Plan, copies of each
such notice;
(viii) within three (3) Business Days after receipt by the Borrower or
any ERISA Affiliate of any unfavorable determination letter from the IRS
regarding the qualification of a Plan under Section 401(a) of the Internal
Revenue Code, copies of each such letter;
(ix) within three (3) Business Days after receipt by the Borrower or
any ERISA Affiliate of a notice from a Multiemployer Plan regarding the
imposition of withdrawal liability, copies of each such notice;
(x) within five (5) Business Days after the Borrower or any ERISA
Affiliate fails to make a required installment or any other required
payment under Section 412 of the Internal Revenue Code on or before the due
date for such installment or payment, a notification of such failure;
(xi) within three (3) Business Days after the Borrower or any ERISA
Affiliate knows or has reason to know (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted
or will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan; and
(xii) within ten (10) Business Days after receipt by the Borrower of a
written notice from the Agent, copies of any Foreign Employee Benefit Plan
and related documents, reports and correspondence as requested by the
Lenders in such notice.
For purposes of this Section 7.05, the Borrower and any ERISA Affiliate shall be
deemed to know all facts known by the administrator of any Plan of which the
Borrower or any ERISA Affiliate is the plan sponsor.
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7.06. Environmental Notices. (a) The Borrower shall notify the Agent
and the Lenders in writing promptly, and in any event within 20 Business Days,
after the Borrower's receipt of any:
(i) written notice or claim by a Governmental Authority or any third
party to the effect that the Borrower or any of the Restricted Subsidiaries
is or may be liable to any Person, or is subject to an investigation by a
Governmental Authority, relating to a material Release or threatened
Release of any Contaminant into the environment;
(ii) written notice that any Property of the Borrower or any of the
Restricted Subsidiaries is subject to an Environmental Lien;
(iii) notice of violation or commencement or written threat of any
judicial or administrative proceeding alleging a material violation by the
Borrower or any of the Restricted Subsidiaries of any Environmental, Health
or Safety Requirement of Law;
(iv) new and material changes to any existing Environmental, Health or
Safety Requirement of Law that would or could reasonably be expected to
have a Material Adverse Effect; or
(v) any intent to execute an agreement, letter of intent or
commitment to acquire stock, assets or real estate, or to lease property,
or to take any other action by the Borrower or any of the Restricted
Subsidiaries that would subject the Borrower or any of the Restricted
Subsidiaries to environmental, health or safety Liabilities and Costs that
would or could reasonably be expected to have a Material Adverse Effect.
(b) The Borrower shall notify the Agent and the Lenders in writing,
promptly and in any event within 20 Business Days upon any filing or report made
by the Borrower or any of its Subsidiaries with any Governmental Authority with
respect to (i) the material violation of any Environmental, Health or Safety
Requirement of Law or (ii) any material unpermitted Release or threatened
Release of a Contaminant;
(c) On June 30 of each Fiscal Year beginning with Fiscal Year 1997, the
Borrower shall submit to the Agent and the Lenders a report prepared by the
appropriate officers of the Borrower summarizing the status of any
environmental, health or safety non-compliance, hazard or liability issues
identified in notices required pursuant to Section 7.06(a), disclosed on
Schedule 6.01-O or identified in any notice or report required herein.
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7.07. Labor Matters. The Borrower shall notify the Agent and the
Lenders in writing, promptly after the Borrower knows thereof, of (i) any
material labor dispute to which the Borrower or any of its Subsidiaries is or is
reasonably likely to be a party, including, without limitation, any strikes,
lockouts or other disputes relating to such Persons' plants and other facilities
and (ii) any Worker Adjustment and Retraining Notification Act or related
liability incurred with respect to the closing of any plant or other facility of
such Persons.
7.08. Government Contracts. (i) The Borrower shall notify the Agent and
the Lenders in writing promptly after the Borrower knows thereof, of any loss or
threatened loss of the security clearances referenced in Section 8.15(b) unless
disclosure thereof is prohibited by any Requirement of Law; and (ii) the
Borrower shall notify the Agent in writing promptly upon (and, in any event,
within five (5) Business Days of) the Borrower obtaining knowledge of any
material change in the status of any action, suit, proceeding, governmental
investigation or other matter disclosed on or arising out of the matters
disclosed on Schedule 6.01-BB and shall provide such other information as may be
reasonably available to it to enable each Lender and the Agent and its counsel
to evaluate such matters.
7.09. Public Filings and Reports. Promptly upon the filing thereof with
any Governmental Authority (including, without limitation, the Securities and
Exchange Commission) or the mailing thereof to the public shareholders or
debtholders of the Borrower generally, copies of all filings or reports made in
connection with outstanding Indebtedness and Capital Stock of the Borrower
(including, without limitation, reports on Forms 10-K, 10-Q, and 8-K).
7.10. Subordinated Notes. Upon its receipt of any of the following, the
Borrower shall deliver promptly thereafter a copy thereof to the Agent and the
Lenders: (a) any material notice or material communication delivered by or on
behalf of the Borrower to any Person in connection with the Subordinated Notes
or the Subordinated Note Indenture, including, without limitation, any notice of
default, any amendment or waiver request or any notice of redemption or
defeasance; and (b) any material notice or other material communication received
by such Borrower from any Person in connection with any agreement or other
document relating to the Subordinated Notes or the Subordinated Note Indenture
promptly after such notice or other communication is received by such Borrower.
7.11. Other Information. Promptly upon receipt of a request therefor
from the Agent, the Borrower shall prepare and deliver to the Agent and the
Lenders such other information with respect to the Borrower, any of the
Borrower's Subsidiaries or the Collateral including, without limitation,
schedules
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identifying and describing the collateral and any dispositions thereof, as from
time to time may be reasonably requested by the Agent.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Each of the Guarantors and the Borrower jointly and severally covenants
and agrees that so long as any Commitment is outstanding and thereafter until
payment in full of all of the Loans and Letter of Credit Obligations, unless the
Requisite Lenders shall otherwise give prior written consent:
8.01. Corporate Existence, Etc. Subject to Section 9.09, each of the
Borrower and each Guarantor shall, and shall cause each of its respective
Subsidiaries to, at all times maintain their respective corporate existence and
preserve and keep, or cause to be preserved and kept, in full force and effect
their respective rights and franchises material to their respective businesses
except for actions in the ordinary course of business where the Board of
Directors of such Person or such Subsidiary (as applicable) determines that the
maintenance or preservation of such rights and franchises is not in the best
interest of such Person or such Subsidiary (as applicable) and the failure to so
maintain or preserve would not be reasonably likely to have a Material Adverse
Effect.
8.02. Corporate Powers; Conduct of Business, Etc. Each of the Borrower
and each Guarantor shall, and shall cause each of its respective Subsidiaries
to, qualify and remain qualified to do business in each jurisdiction in which
the nature of its business requires it to be so qualified, except where the
failure to be so qualified would not be reasonably likely to have a Material
Adverse Effect.
8.03. Compliance with Laws, Etc. Each of the Borrower and each
Guarantor shall, and shall cause each of its respective Subsidiaries to, (a)
comply with all Requirements of Law and all restrictive covenants affecting such
Person or the business, Property, assets or operations of such Person, and (b)
obtain as needed all Permits necessary for such Person's operations and maintain
such Permits in good standing, except, in each case, where the failure to do so
would not have or be reasonably likely to have a Material Adverse Effect.
8.04. Payment of Taxes and Claims; Tax Consolidation. Each of the
Borrower and each Guarantor shall, and shall cause each of its respective
Subsidiaries to, pay (a) all taxes, assessments and other governmental charges
imposed upon it or on any of its Property or assets or in respect of any of its
franchises, business, income or Property before the same shall
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become delinquent or in default, and (b) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (other
than a Lien permitted by Section 9.03) upon any of the Borrower's or such
Subsidiary's Property or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; provided, however, that no such taxes,
assessments and governmental charges referred to in clause (a) above or claims
referred to in clause (b) above are required to be paid if being contested in
good faith by the Borrower or such Subsidiary, as the case may be, by
appropriate proceedings diligently instituted and conducted and without danger
of any material risk to the Collateral and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor. Neither the Borrower nor any Guarantor shall, nor shall permit
any of its respective Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any Person (other than the Borrower and its
Subsidiaries).
8.05. Insurance. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain, in full force
and effect the insurance policies and programs listed on Schedule 6.01-W or
substantially similar policies and programs or other policies and programs as
are acceptable to the Agent; provided, however, the Borrower shall not be
required to maintain such policies identified on Schedule 6.01-W that were
required to be maintained by the Borrower solely pursuant to a Requirement of
Law that has been legally waived or eliminated. Each certificate and policy
relating to Property damage, boiler and machinery and/or business interruption
coverage shall contain an endorsement, in form and substance acceptable to the
Agent, showing loss payable to the Agent, for the benefit of the Agent, the
Issuing Banks and the Lenders and/or naming the Agent as an additional insured
under such policy and providing that no act, whether willful or negligent, or
default of the Borrower, any of its Subsidiaries or any other Person shall
affect the right of the Agent to recover under such policy or policies of
insurance in case of loss or damage. Each certificate and policy relating to
umbrella and general liability coverages other than the foregoing shall contain
an endorsement naming the Agent as an additional insured under such policy. Such
endorsement or an independent instrument furnished to the Agent shall provide
that the insurance companies shall give the Agent at least thirty (30) days'
written notice before any such policy or policies of insurance shall be
cancelled or altered adversely to the interests of the Agent, the Issuing Banks
and the Lenders. In the event that the Borrower or any of its Subsidiaries, at
any time or times hereafter, shall fail to obtain or maintain any of the
policies or insurance required herein or to pay any premium in whole or in part
relating thereto, then the Agent, without waiving or releasing
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any obligations or resulting Event of Default hereunder, may at any time or
times thereafter (but shall be under no obligation to do so) obtain and maintain
such policies of insurance and pay such premiums and take any other action with
respect thereto which the Agent deems advisable. All sums so disbursed by the
Agent shall constitute Protective Advances and be part of the Obligations,
payable as provided herein.
8.06. Inspection of Property; Books and Records; Discussions. (a) Each
of the Borrower and each Guarantor shall permit, and shall cause each of their
respective Subsidiaries to permit, any authorized representative(s) designated
by the Agent or any Lender to visit and inspect any of the Properties of such
Person or such Subsidiary, to examine, audit, check and make copies of their
respective financial and accounting records, books, journals, orders, receipts
and any correspondence and other data relating to their respective businesses or
the transactions contemplated hereby and by the Transaction Documents
(including, in connection with environmental compliance, hazard or liability),
and to discuss their affairs, finances and accounts with their officers and
independent certified public accountants, upon reasonable notice and at such
times during normal business hours, as often as may be reasonably requested. All
reasonable costs and expenses incurred by the Agent or, after the occurrence and
during the continuance of any Default or Event of Default, all costs and
expenses incurred by the Agent or any Lender, in each case as a result of such
inspection, audit or examination conducted pursuant to this Section 8.06 shall
be paid by the Borrower.
(b) Each of the Borrower and each Guarantor shall keep and maintain,
and shall cause their respective Subsidiaries to keep and maintain, in all
material respects proper books of record and account in which entries in
conformity with GAAP (it being understood that the books of record and account
for any Unrestricted Subsidiary may be kept in accordance with generally
accepted accounting principles in the relevant jurisdiction) shall be made of
all dealings and transactions in relation to their respective businesses and
activities, including, without limitation, transactions and other dealings with
respect to the Collateral. If an Event of Default has occurred and is
continuing, the Borrower, upon the Agent's request, shall promptly turn over
true, correct and complete copies of all such records to the Agent or any of its
representatives.
8.07. Insurance and Condemnation Proceeds. The Borrower hereby directs
(and, if applicable, shall cause the Restricted Subsidiaries to direct) all
insurers under policies of property damage, boiler and machinery and business
interruption insurance and payors of any condemnation claim or award relating to
the Property to pay all proceeds payable under such policies or with respect to
such claim or award for any loss directly to
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the Agent, for the benefit of the Agent, the Issuing Banks, the Lenders and the
other Holders, and in no case to the Borrower or one or more of its
Subsidiaries. Upon receipt of such proceeds, the Agent shall hold such proceeds
in the Cash Collateral Account as Collateral for the Obligations. For up to 180
days from the date of any loss (the "Decision Period"), the Borrower may notify
the Agent that it intends to restore, rebuild or replace the Property subject to
the receipt of any insurance payment or condemnation award and shall, as soon as
practicable thereafter, provide the Agent detailed information, including a
construction schedule, if applicable, and cost estimates. Should the Borrower
notify the Agent that it has decided not to rebuild or replace such Property
during the Decision Period, or should the Borrower fail to notify the Agent of
the Borrower's decision during the Decision Period, then the amounts held as
Collateral shall automatically be applied as a mandatory prepayment of the Loans
pursuant to Section 3.01(b)(i). Proceeds held as Collateral shall be disbursed
as construction payments or, in the case of Inventory, to pay accounts payable
associated with such Inventory as such accounts payable become due; provided,
however, should a Default or an Event of Default occur after the Borrower has
notified the Agent that it intends to rebuild or replace the Property, the
Collateral may, at the Agent's discretion, or shall, upon the direction of the
Requisite Lenders be applied as a mandatory prepayment of the Loans pursuant to
Section 3.01(b)(i). Upon completion of the restoration, rebuilding or
replacement of such Property, the unused proceeds held as Collateral shall
constitute Net Cash Proceeds and shall be applied as a mandatory prepayment of
the Loans pursuant to Section 3.01(b)(i). Notwithstanding the Borrower's right
to withdraw funds on deposit in the Cash Collateral Account pursuant to Sections
2.02(c), 2.03(c) and 3.05, no funds held in the Cash Collateral Account pursuant
to this Section 8.07 may be released except in accordance with the terms of this
Section 8.07.
8.08. ERISA Compliance. The Borrower shall, and shall cause each of its
Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans
(other than multiemployer plans and government-sponsored plans) to comply in all
material respects with the provisions of ERISA, the Internal Revenue Code, all
other applicable laws, and the regulations and interpretations thereunder and
the respective requirements of the governing documents for such Plans.
8.09. Foreign Employee Benefit Plan Compliance. The Borrower shall, and
shall cause each of its Subsidiaries and ERISA Affiliates to establish, maintain
and operate all Foreign Employee Benefit Plans (other than government-sponsored
plans) to comply in all material respects with all laws, regulations and rules
applicable thereto and the respective requirements of the governing documents
for such Plans.
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8.10. Establishment of Lockbox Accounts; Maintenance of Property. On or
prior to the Closing Date, the Borrower shall establish Lockbox Accounts with
each of the Lockbox Banks listed on Schedule 6.01-AA. The Borrower shall cause
all Property used or useful in the conduct of its business or the business of
any Subsidiary of the Borrower to be maintained and kept in the same condition
as currently maintained, reasonable and ordinary wear and tear excepted, and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof; provided,
however, that nothing in this Section shall prevent the Borrower from
discontinuing the operation or maintenance of any of such Property if such
discontinuance is, in the judgment of the Borrower, necessary or appropriate in
the conduct of its business or the business of any Subsidiary and not
disadvantageous to the Agent, the Issuing Banks or the Lenders.
8.11. Condemnation. So long as the A Term Loans, the B Term Loans or
the C Term Loans are outstanding, immediately upon learning of the institution
of any proceeding for the condemnation or other taking of any of the owned or
leased Real Property of the Borrower or any of its Restricted Subsidiaries, the
Borrower shall notify the Agent (who shall in turn forward such notice to the
Lenders) of the pendency of such proceeding, and permit the Agent to participate
in any such proceeding, and from time to time shall deliver to the Agent all
instruments reasonably requested by the Agent to permit such participation.
8.12. Future Liens on Real Property. (a) So long as the A Term Loans,
the B Term Loans or the C Term Loans are outstanding, at least fifteen (15)
Business Days prior to the entering into of any Lease with respect to which the
annual rental payments thereunder are anticipated to equal or exceed $1,000,000
or the acquisition of any material Real Property, the Borrower shall, and shall
cause its Restricted Subsidiaries to, provide the Agent written notice thereof
(which notice the Agent shall forward to each Lender). Upon written request of
the Agent, the Borrower shall, and shall cause its Subsidiaries to, execute and
deliver to the Agent, for the benefit of the Agent, the Issuing Banks, the
Lenders and the other Holders, immediately upon the acquisition of any Real
Property (other than Real Property acquired with the proceeds of Indebtedness
permitted by Section 9.01(vi) and subject to a Lien permitted by Section
9.03(iv)) a mortgage, deed of trust, assignment or other appropriate instrument
evidencing a Lien upon any such Real Property, together with such Title
Policies, certified Surveys, and local counsel opinions with respect thereto and
such other agreements, documents and instruments which the Agent deems necessary
or desirable, the same to be in form and substance substantially the same as the
mortgages and other Loan Documents relating to Real Property executed and
delivered hereunder on the Closing Date, and to be subject only to (i) Liens
permitted under
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Section 9.03 and (ii) such other Liens as the Agent may reasonably approve, it
being understood that the granting of such additional security for the
Obligations is a material inducement to the execution and delivery of this
Agreement by each Lender.
(b) Within 90 days after the Closing Date, the Borrower shall cause its
Subsidiary, Baird Corporation, to execute and deliver to the Agent, for the
benefit of the Agent, the Issuing Banks, the Lenders and the other Holders, a
mortgage, deed of trust, assignment or other appropriate instrument evidencing a
Lien upon the Real Property of Baird Corporation located in Bedford,
Massachusetts, together with such Title Policies, certified Surveys, and local
counsel opinions with respect thereto and such other agreements, documents and
instruments which the Agent deems necessary or desirable, the same to be in form
and substance substantially the same as the mortgages and other Loan Documents
relating to Real Property executed and delivered hereunder on the Closing Date,
and to be subject only to Liens permitted under Section 9.03.
8.13. Landlord Waivers. The Borrower shall use its best efforts to
obtain and deliver to the Agent landlord waivers (with copies of the relevant
Lease attached) with respect to (x) any Lease on Schedule 6.01-V which relates
to a location in which there is, or is reasonably expected to be, collateral
with a Fair Market value of $250,000 or more and (y) any Lease entered into
after the Closing Date which relates to a location in which there is, or is
reasonably expected to be, Collateral with a Fair Market Value of $250,000 or
more (it being understood and agreed that, if possible, the landlord waivers
referred to in clause (x) shall be obtained within ninety (90) days after the
Closing Date, and that the Borrower shall not be required to make any material
payment to, or to make any material lease concessions for the benefit of, any
landlord in order to obtain any such landlord waiver referred to in either
clauses (x) or (y)).
8.14. Environmental Compliance. The Borrower and the Borrower's
Subsidiaries shall comply in all material respects with all applicable
Environmental, Health and Safety Requirements of Law.
8.15. Government Contracts. (a) Within sixty (60) days after the
Closing Date, the Borrower shall have executed and delivered to the Agent all
documents, in form and substance reasonably satisfactory to the Agent, and taken
all such other action (other than the transmittal of the notice of assignment to
the United States Government) reasonably required by the Agent to request an
assignment of all Receivables of the Borrower and its Restricted Subsidiaries
(created on or prior to such date) arising under any Material Government
Contract to the Agent pursuant to the Assignment of Claims Act of 1940, as
amended (the "Assignment of Claims Act"). Within thirty (30) days of the
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creation of a Material Government Contract or, upon the occurrence and during
the continuance of a Default or an Event of Default, of the creation of any
Government Contract (other than in either case a Government Contract subject to
the foregoing sentence and Government Contracts which by their express terms are
not assignable) the Borrower shall execute and deliver to the Agent all
documents, in form and substance reasonably satisfactory to the Agent, and take
all such other action (other than the transmittal of the notice of assignment to
the United States Government) reasonably required by the Agent to request an
assignment of the Receivables of the Borrower and its Restricted Subsidiaries
arising under such Material Government Contract, to the Agent pursuant to the
Assignment of Claims Act. Upon the occurrence and during the continuance of a
Default or Event of Default, the Agent may, and shall at the direction of the
Requisite Lenders, transmit any such notice of assignment received by it from
the Borrower to the United States Government.
(b) The Borrower shall apply for and maintain all facility security
clearances and personnel security clearances required of the Borrower or any of
its Subsidiaries under all Requirements of Law to perform and deliver under any
and all Government Contracts and as otherwise may be necessary to continue to
perform the Borrower's business.
8.16. Post-Closing Matters. To the extent not delivered prior to or on
the Closing Date, the Borrower shall deliver to the Agent, in form and substance
satisfactory to the Agent, each of the agreements, instruments and other
documents listed under the heading "J. Postclosing Matters" on the List of
Closing Documents attached hereto as Exhibit E within 30 days from the Closing
Date (unless otherwise indicated on such list).
ARTICLE IX
NEGATIVE COVENANTS
Each of the Guarantors and the Borrower jointly and severally covenants
and agrees that each shall comply with the following covenants so long as any
Commitment is outstanding and thereafter until payment in full of all of the
Loans and Letter of Credit Obligations, unless (except as otherwise provided
below) the Requisite Lenders shall otherwise give prior written consent thereto:
9.01. Indebtedness. None of the Borrower, the Guarantors or any of
their respective Subsidiaries shall directly or indirectly create, incur, assume
or otherwise become or remain directly or indirectly liable with respect to any
Indebtedness, except:
(i) the Obligations;
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(ii) the Subordinated Notes in an aggregate outstanding principal
amount not to exceed $155,000,000;
(iii) Permitted Existing Indebtedness, and any extensions, renewals,
refundings or replacements of Permitted Existing Indebtedness, provided
that any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, and is
on terms no less favorable to the Borrower or such Subsidiary than the
terms of, the Permitted Existing Indebtedness so extended, renewed,
refunded or replaced;
(iv) Indebtedness in respect of taxes, assessments, governmental
charges and claims for labor, materials or supplies, to the extent that
payment thereof is not required pursuant to Section 8.04;
(v) Indebtedness constituting either Accommodation Obligations
permitted by Section 9.05 or Restricted Junior Payments pursuant to Section
9.06;
(vi) to the extent permitted by Article X and in any event in an
aggregate amount not to exceed $5,000,000 at any time, Capital Leases and
purchase money Indebtedness incurred by the Borrower and/or any Guarantor
to finance the acquisition of fixed assets, and Indebtedness incurred by
the Borrower and/or any Guarantor to refinance such Capital Leases and
purchase money Indebtedness;
(vii) Indebtedness under appeal bonds in connection with judgments
which, in the absence of such appeal bonds, would not result in an Event of
Default or Default or any other breach hereunder (it being understood that
the Borrower may create and become liable with respect to an appeal bond in
an amount of up to $18,000,000 (plus interest) in connection with the IIC
Reinstatement);
(viii) Indebtedness arising from intercompany loans (A) from the
Borrower to any Wholly Owned Subsidiary which Indebtedness shall not cause
the Maximum Subsidiary Investment Amount to exceed $5,000,000 in the
aggregate at any time; (B) from any Wholly Owned Subsidiary to the Borrower
or any other Wholly Owned Subsidiary; or (C) from the Borrower to any
Guarantor in connection with Investments permitted pursuant to Section
9.04; provided that the loans referred to in clause (C) shall be evidenced
by promissory notes payable to the Borrower, in form and substance
satisfactory to the Agent, which promissory notes shall be
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delivered and pledged to the Agent as part of the Collateral;
(ix) Indebtedness of the Borrower arising pursuant to Interest Rate
Contracts to which a Lender or an Affiliate of a Lender is a party having
Interest Rate Contract Exposure in an amount not to exceed an amount equal
to (x) $10,000,000 minus (y) the aggregate Currency Agreement Exposure at
such time;
(x) Indebtedness of the Borrower arising pursuant to Currency
Agreements to which a Lender or an Affiliate of a Lender is a party having
Currency Agreement Exposure in an amount not to exceed an amount equal to
(x) $10,000,000 minus (y) the aggregate Interest Rate Contract Exposure at
such time;
(xi) Indebtedness incurred by an Unrestricted Subsidiary; provided
that such Indebtedness (i) is not guaranteed or otherwise supported in
whole or part (other than pursuant to (x) one or more Permitted Existing
Accommodation Obligations or (y) the Accommodation Obligations permitted
pursuant to Section 9.05(vi)) by the Borrower or any Restricted Subsidiary
and (without limiting the generality of the foregoing, but subject to the
immediately preceding parenthetical clause) neither the Borrower nor any
Restricted Subsidiary has any liability (contractual or otherwise) in
respect of such Indebtedness and (ii) is not secured in whole or in part by
any asset of the Borrower or any Restricted Subsidiary;
(xii) Indebtedness under surety bonds and similar arrangements
(including, without limitation, Permitted Existing Surety Bonds), not to
exceed, in the case of Unsupported Surety Bonds, $15,000,000 in the
aggregate at any one time outstanding;
(xiii) any arrangement pursuant to which the Borrower agrees to
subordinate any obligation of the Unrestricted Subsidiaries owing to it to
any obligation of the Unrestricted Subsidiaries owing to another creditor;
and
(xiv) additional Indebtedness of the Borrower incurred after the date
hereof in an aggregate amount not to exceed $1,000,000 at any one time
outstanding, or, after the outstanding principal amount of the Term Loans
has been reduced to an amount equal to or less than $52,500,000, $5,000,000
at any one time outstanding.
9.02. Sales of Assets. None of the Borrower or any of the Restricted
Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of
any Property, whether now owned or
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hereafter acquired, or any income or profits therefrom, or enter into
any agreement to do so, except:
(i) the sale of Inventory of the Borrower and the Restricted
Subsidiaries in the ordinary course of business;
(ii) sales of assets outside of the ordinary course of business not
in excess of $500,000 in a single transaction or series of related
transactions and in any event aggregating less than $1,000,000 in any
Fiscal Year;
(iii) in addition to dispositions permitted under clauses (i) and (ii)
of this Section 9.02, the disposition of Equipment if such Equipment is
obsolete or no longer useful in the ordinary course of the Borrower's or
such Restricted Subsidiary's business; provided that no such sale shall be
made for less than Fair Market Value;
(iv) assignments and licenses of intellectual property of the
Borrower in the ordinary course of business;
(v) the sale or transfer of assets of the Borrower or any Wholly
Owned Subsidiary to any Wholly Owned Subsidiary or to the Borrower, which
sales or transfers shall not cause the Maximum Subsidiary Investment
Amount, together with the amount of Investments in Permitted Joint Ventures
made pursuant to Section 9.04(x), to exceed $5,000,000 in the aggregate at
any time;
(vi) subleases of leases or leases of owned Real Property, to the
extent such leases and subleases have anticipated annual rentals of less
than $1,000,000 each;
(vii) the sale by the Borrower and/or its Subsidiaries, as applicable,
of any or all of the Non-Operating Assets; provided that no such sale shall
be made for less than Fair Market Value;
(viii) the sale by the Borrower and/or its Subsidiaries, as applicable,
in a single transaction or in a series of transactions, pursuant to
documentation which shall be delivered to the Agent promptly upon its
becoming available, of all or any part of the Discontinued Operations;
provided that (i) if Varo's electronic systems division is so sold, the
Borrower shall have received Net Cash Proceeds of at least $10,000,000 in
respect thereof and (ii) if Roltra- Morse S.p.A. is so sold, the Borrower
shall have received Net Cash Proceeds of at least $40,000,000 in respect
thereof; and
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(ix) the sale or transfer by the Borrower and/or its Restricted
Subsidiaries, as applicable, of Property pursuant to an Operating Lease
Transaction.
9.03. Liens. None of the Borrower or any of the Restricted Subsidiaries
shall directly or indirectly create, incur, assume or permit to exist any Lien
on or with respect to any of their respective Property or assets except:
(i) Liens created by the Loan Documents;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) purchase money Liens granted by the Borrower or any Guarantor
(including the interest of a lessor under a Capital Lease) and Liens to
which any Property is subject at the time of the Borrower's or any
Guarantor's acquisition thereof) securing Indebtedness permitted under
Section 9.01(vi) and limited in each case to the property purchased or
subject to such lease;
(v) any attachment or Lien in respect of a judgment, provided the
existence of such judgment does not constitute an Event of Default under
Section 11.01(h);
(vi) to the extent Indebtedness secured thereby is permitted to be
extended, renewed, refunded or refinanced pursuant to clause (iii) of
Section 9.01, a future Lien on any Property which is subject to a Lien
described in clauses (ii) and (iv) above, if such future Lien attaches only
to the same Property and secures only such permitted extensions, renewals,
replacements or refinancings;
(vii) Liens securing reimbursement obligations with respect to trade
letters of credit which constitute Permitted Existing Indebtedness;
provided that such Liens only attach to the assets being acquired with the
proceeds of such letters of credit;
(viii) any negative pledge arrangement contained in the Subordinated
Note Indenture;
(ix) Liens not otherwise permitted by the foregoing clauses of this
Section securing Indebtedness in an amount no greater than $1,000,000 at
any time outstanding; and
(x) Liens granted by the Borrower on bank deposits denominated in
Dollars (or the foreign currency equivalent
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thereof) supporting loans by banks in China in connection with the joint
venture in China between the Borrower, through its Morse Controls Division,
and Xiangfan Dong Feng Motor Instrument Co., Ltd.; provided that the amount
of such deposits, together with the amount of Investments made in such
joint venture pursuant to Section 9.04(ix) and the amount of Accommodation
Obligations incurred in connection with such joint venture pursuant to
Section 9.05(viii) shall be in an aggregate amount not to exceed
$4,000,000, (or the foreign currency equivalent thereof), or $6,000,000 (or
the foreign currency equivalent thereof), provided that the excess over
$4,000,000 (or the foreign currency equivalent thereof) is secured by one
or more letters of credit in favor of the Borrower, in any case at any one
time outstanding.
9.04. Investments. None of the Borrower or any of the Restricted
Subsidiaries shall directly or indirectly make or own any Investment except:
(i) Investments in Cash Collateral pledged to the Agent or deposited
in the Cash Collateral Account in accordance with the terms hereof
(including any Investments in Cash Equivalents through such account);
(ii) Permitted Existing Investments in an amount not greater than the
amount thereof on the Closing Date;
(iii) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(iv) Investments by the Borrower in any Wholly Owned Subsidiaries
(including Persons which become Wholly Owned Subsidiaries as a result of
such Investment) which Investments shall not cause the Maximum Subsidiary
Investment Amount, together with the amounts of Investments made pursuant
to Section 9.04(x), to exceed $5,000,000 in the aggregate at any time;
(v) cash Investments in intercompany loans permitted pursuant to
subclauses (A) and (B) of Section 9.01(viii);
(vi) Investments in the bank accounts listed on Schedule 9.18 made in
the ordinary course of business not at any time exceeding in the aggregate
$1,500,000; provided, that if at any time no non-contingent Revolving
Credit Obligations are outstanding or the outstanding principal balance of
the Term Loans has been reduced to an amount less than or equal to
$52,500,000, Investments at such time in
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such bank accounts shall not exceed in the aggregate $5,000,000;
(vii) Investments by the Borrower in the form of intercompany loans to
any Guarantor; provided that such loans shall be in an aggregate amount not
to exceed $5,000,000 at any one time outstanding; and provided, further,
that the proceeds of such loans shall not, in the case of Varo, be used to
make discretionary Capital Expenditures;
(viii) Investments by the Borrower and/or any of the Restricted
Subsidiaries in one or more Unrestricted Subsidiaries or Permitted Joint
Ventures which are not organized and existing under the laws of the United
States of America, any State thereof, the District of Columbia or the
United States Virgin Islands; provided that the aggregate book value of
such Investments made after the Closing Date, determined with respect to
each such Investment at the time such Investment is made, shall not exceed
$5,000,000, or, after the outstanding principal amount of the Term Loans
has been reduced to an amount equal to or less than $52,500,000,
$10,000,000;
(ix) Investments by the Borrower in the joint venture in China
between the Borrower, through its Morse Controls Division, and Xiangfan
Dong Feng Motor Instrument Co., Ltd.; provided, that the aggregate amount
of such Investments, determined with respect to each such Investment at the
time such Investment is made, together with the amount of bank deposits
subject to a Lien permitted pursuant to Section 9.03(x) and the amount of
Accommodation Obligations incurred in connection with such joint venture
pursuant to Section 9.05(viii), shall not exceed $4,000,000 (or the foreign
currency equivalent thereof), or $6,000,000 (or the foreign currency
equivalent thereof), provided that the excess over $4,000,000 (or the
foreign currency equivalent thereof) is secured by one or more letters of
credit in favor of the Borrower, in any case at any one time outstanding;
(x) Investments by the Borrower, any Guarantor or Wholly Owned
Subsidiary in Permitted Joint Ventures organized and existing under the
laws of the United States of America, any State thereof, the District of
Columbia or the United States Virgin Islands and other Investments by the
Borrower that constitute the acquisition by the Borrower of a product or
line of business that is substantially similar, related or incidental to
the business currently conducted or products sold by the Borrower; provided
that the aggregate book value of such Investments made after the Closing
Date, determined with respect to each such Investment at the time such
Investment is made, together
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with the Maximum Subsidiary Investment Amount at the time of such
Investment, does not exceed in aggregate $5,000,000 at any time; and
(xi) other Investments by the Borrower, the aggregate amount of which
shall not exceed $1,000,000.
9.05. Accommodation Obligations. None of the Borrower or any of the
Restricted Subsidiaries shall directly or indirectly create or become or be
liable with respect to any Accommodation Obligation, except:
(i) Permitted Existing Accommodation Obligations;
(ii) Accommodation Obligations arising under the Loan Documents;
(iii) obligations, warranties and indemnities, not with respect to
Indebtedness of any Person, which have been or are undertaken or made in
the ordinary course of business and not for the benefit of or in favor of
an Affiliate of the Borrower or any of the Borrower's Subsidiaries;
(iv) Accommodation Obligations of the Borrower in respect of any
Wholly Owned Subsidiary, which Accommodation Obligations shall not cause
the Maximum Subsidiary Investment Amount, together with the amount of
Investments in Permitted Joint Ventures made pursuant to Section 9.04(x),
to exceed $5,000,000 at any time;
(v) Accommodation Obligations of any Restricted Subsidiary in respect
of obligations of the Borrower;
(vi) Extensions, renewals or replacements of Permitted Existing
Accommodation Obligations of the Borrower in respect of the obligations of
any Unrestricted Subsidiary (provided the amount of such Accommodation
Obligations is not increased as a result of any extension, renewal or
replacement thereof) and other Accommodation Obligations of the Borrower in
respect of obligations of any Unrestricted Subsidiary; provided that (x)
the aggregate amount of such Accommodation Obligations (other than such
extensions, renewals or replacements of Permitted Existing Accommodation
Obligations) shall not exceed $6,000,000 at any time outstanding prior to
the sale of Roltra-Morse S.p.A. and (y) the aggregate amount of such
Accommodation Obligations (including Permitted Existing Accommodation
Obligations of the Borrower in respect of the obligations of any
Unrestricted Subsidiary and any extensions, renewals or replacements of
such Permitted Existing Accommodation Obligations) shall not exceed
$10,000,000 at any time outstanding after such sale;
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(vii) Accommodation Obligations in respect of appeal bonds and surety
bonds and similar arrangements permitted by Section 9.01;
(viii) Accommodation Obligations of the Borrower consisting of letters
of credit, guaranties and/or cross- guaranties of loans by banks in China
to the joint venture in China between the Borrower, through its Morse
Controls Division, and Xiangfan Dong Feng Motor Instrument Co., Ltd.;
provided, that the aggregate amount of such Accommodation Obligations,
together with the amount of bank deposits subject to a Lien permitted
pursuant to Section 9.03(x) and the amount of Investments made in
connection with such joint venture pursuant to Section 9.04(iv), shall not
exceed $4,000,000 (or the foreign currency equivalent thereof), or
$6,000,000 (or the foreign currency equivalent thereof), provided that the
excess over $4,000,000 (or the foreign currency equivalent thereof) is
secured by one or more letters of credit in favor of the Borrower, in any
case, at any one time outstanding; and
(ix) indemnities not with respect to Indebtedness of any Person,
which have been undertaken or made in connection with the sale of assets
permitted pursuant to Section 9.02; provided that such indemnities do not
and are not reasonably likely to have a Material Adverse Effect.
9.06. Restricted Junior Payments. Subject to Section 9.17, none of the
Borrower or any of the Restricted Subsidiaries shall declare or make any
Restricted Junior Payment, except (i) regularly scheduled payments of interest
on the Subordinated Notes if such payments are permitted to be made pursuant to
the terms of the Subordinated Note Indenture, (ii) the redemption, retirement or
defeasance in full of the 12% Debentures and the 12.25% Debentures on the
Closing Date and (iii) the redemption, repayment or repurchase of the
Subordinated Notes with Net Cash Proceeds arising from the issuance of Capital
Stock by the Borrower to the extent the application of the proceeds thereof is
permitted to be so applied under Section 3.01(b)(ii).
9.07. Conduct of Business; Subsidiaries; Acquisitions. None of the
Borrower or any of its Subsidiaries (other than any Subsidiaries sold in
accordance with Section 9.02) shall engage in any business other than the
businesses engaged in by the Borrower or such Subsidiary, as applicable, on the
date hereof and any business or activities which are substantially similar,
related or incidental thereto. Except as expressly permitted pursuant to Section
9.02 or Section 9.09, the Borrower shall not sell or otherwise dispose of, or
permit the sale or disposition of, any shares of Capital Stock of any of its
Subsidiaries. Except as permitted in accordance with Section 9.04, the Borrower
shall not enter into or permit any transaction or series of
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transactions in which the Borrower and/or any of the Restricted Subsidiaries
acquire all or any significant portion of the Capital Stock and/or assets of
another Person, except in connection with a Permitted Joint Venture, the
Investment in which is permitted under Section 9.04(viii) or (x).
9.08. Transactions with Shareholders and Affiliates. None of the
Borrower or any of the Borrower's Subsidiaries shall directly or indirectly
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any Property or the rendering of any
service) with any holder or holders of more than five percent (5%) of any class
of equity Securities of the Borrower, or with any Affiliate of the Borrower
which is not its Subsidiary, on terms that are less favorable to the Borrower or
any such Subsidiary, as applicable, than those that could be obtained in an
arm's length transaction at the time from Persons who are not such a holder or
Affiliate.
9.09. Restriction on Fundamental Changes. Except with respect to the
Subsidiaries and Affiliates set forth on Schedule 9.09, none of the Borrower or
any of the Restricted Subsidiaries shall (a) enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution), except for (1) a merger of a Wholly Owned Subsidiary into the
Borrower (with the Borrower as the surviving corporation) or another Wholly
Owned Subsidiary or (2) the dissolution or merger of a Subsidiary (other than a
Guarantor) (provided that, in the case of any such dissolution or merger of such
a Subsidiary, the board of directors of the Borrower shall have determined that
such dissolution is not reasonably likely to result in a Material Adverse
Effect), or convey, lease, sell, transfer or otherwise dispose of, in one
transaction or series of transactions, all or substantially all of the
Borrower's or any such Subsidiary's business or Property, whether now or
hereafter acquired, except transactions permitted under Section 9.02 or (b)
enter into any partnership or joint venture except Permitted Joint Ventures, the
Investment in which is permitted under Sections 9.04(viii) or (x), and the joint
venture referred to in Section 9.04(ix).
9.10. Sales and Leasebacks. None of the Borrower or any of the
Restricted Subsidiaries shall become liable, directly, by assumption or by
Accommodation Obligation, with respect to any lease, whether an Operating Lease
or a Capital Lease (except to the extent otherwise permitted by Article X and
Section 9.01(vi)), of any Property (whether real or personal or mixed) (i) which
it or one of its Subsidiaries sold or transferred or is to sell or transfer to
any other Person, or (ii) which it or one of its Subsidiaries intends to use for
substantially the same purposes as any other Property which has been or is to be
sold or transferred by it or one of its Subsidiaries to any other Person in
connection with such lease, except that Borrower or any of the Restricted
Subsidiaries may become liable with respect to an
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Operating Lease in connection with an Operating Lease Transaction.
9.11. Margin Regulations; Securities Laws. None of the Borrower or any
of the Borrower's Subsidiaries, shall use all or any portion of the proceeds of
any credit extended hereunder to purchase or carry Margin Stock.
9.12. ERISA. The Borrower shall not:
(i) engage, or permit any ERISA Affiliate to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Internal Revenue Code for which a statutory or class exemption is not
available or a private exemption has not been previously obtained from the
DOL;
(ii) permit to exist any accumulated funding deficiency (as defined
in sections 302 of ERISA and 412 of the Internal Revenue Code), with
respect to any Benefit Plan, whether or not waived;
(iii) fail, or permit any ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any ERISA Affiliate to terminate, any
Benefit Plan which would result in any material liability of Borrower or
any ERISA Affiliate under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer
Plan which Borrower or any ERISA Affiliate may be required to make under
any agreement relating to such Multiemployer Plan, or any law pertaining
thereto;
(vi) fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Internal
Revenue Code on or before the due date for such installment or other
payment;
(vii) amend, or permit any ERISA Affiliate to amend, a Plan resulting
in an increase in current liability for the plan year such that the
Borrower or any ERISA Affiliate is required to provide security to such
Plan under Section 401(a)(29) of the Internal Revenue Code;
(viii) permit any unfunded liabilities with respect to any Foreign
Pension Plan, except to the extent permitted by local law; or
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(ix) fail, or permit any Subsidiary or ERISA Affiliate to fail, to pay
any required contributions or payments to a Foreign Pension Plan on or
before the due date for such required installment or payment.
9.13. Issuance of Capital Stock. None of the Borrower's Subsidiaries
shall issue any Capital Stock, except the Capital Stock of any such Subsidiary
to the extent the creation thereof is permitted pursuant to Sections 9.04 and
9.07.
9.14. Constituent Documents. None of the Borrower or any of the
Borrower's Subsidiaries shall amend, modify or otherwise change any of the terms
or provisions in any of their respective Constituent Documents as in effect on
the Closing Date (except for amendments, modifications or other changes to such
Constituent Documents that, in the judgment of the Agent, do not materially
affect the interests of the Lenders and Issuing Banks under the Transaction
Documents or in the Collateral and amendments of the Borrower's Certificate of
Incorporation to authorize the issuance of additional shares of Capital Stock)
without the prior written consent of the Requisite Lenders, which consent shall
not be unreasonably withheld.
9.15. Fiscal Year. None of the Borrower or any of the Borrower's
consolidated Subsidiaries shall change its Fiscal Year for accounting or tax
purposes from a period consisting of the 12-month period ending on December 31
of each calendar year.
9.16. Cancellation of Debt; Prepayment; Certain Amendments. Neither the
Borrower nor any of the Restricted Subsidiaries shall (i) cancel any material
claim or debt, except in the ordinary course of its business, (ii) prepay,
redeem, purchase, repurchase, defease or retire any long-term Indebtedness
(including, without limitation, the Indebtedness evidenced by the Subordinated
Notes except as contemplated in Section 3.01(b)(ii), but excluding the
Obligations), other than Restricted Junior Payments permitted to be made in
accordance with Section 9.06, or (iii) amend, supplement or otherwise modify the
terms of the Subordinated Note Documents (except for amendments, supplements or
other modifications to such agreements, instruments or documents that, in the
judgment of the Agent, do not materially affect the rights and privileges of the
Borrower under such Subordinated Note Documents, or the interests of the Lenders
and Issuing Banks under the Transaction Documents or in the Collateral).
9.17. Cash Management. Subject to Section 9.04, neither the Borrower
nor any of the Restricted Subsidiaries shall open any deposit or payroll account
with any Person except in accordance with Section 3.05 and deposit or payable
accounts listed on Schedule 9.18. Subject to Section 9.04, the Borrower or any
Restricted Subsidiary may open deposit or payroll accounts
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with other financial institutions in the ordinary course of business and shall
deliver to the Agent a substitute Schedule 9.18 specifying the name of such
financial institutions and the intended use for such account. The Borrower shall
not authorize or direct any Person to take any action with respect to amounts
deposited in the Lockboxes, the Lockbox Accounts or the Cash Collateral Account
in contravention of the provisions hereof.
9.18. Environmental Matters. None of the Borrowers nor any of
Borrowers' Subsidiaries shall:
(i) become subject to any Liabilities and Costs which would have a
Material Adverse Effect arising out of or related to (a) the Release or
threatened Release at any location of any Contaminant into the environment, or
any Remedial Action in response thereto, or (b) any violation of any
Environmental, Health and Safety Requirements of Law; or
(ii) either directly or indirectly, create, incur, assume or permit to
exist any Environmental Lien on or with respect to any of the mortgaged
Property.
9.19. Unrestricted Subsidiary. No Unrestricted Subsidiary shall enter
into any Accommodation Obligation with respect to any Indebtedness of the
Borrower or any Restricted Subsidiary other than the Obligations or grant or
permit to exist any Lien on its Property to secure any such Indebtedness.
9.20. No New Restrictions on Subsidiary Dividends. Except as may be
required by any applicable Requirements of Law, the Borrower will not agree, or
permit any of the Restricted Subsidiaries to agree, to create or otherwise
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to pay dividends or make any other
distribution or transfer of funds or assets or make loans or advances to or
other Investments in, or pay any Indebtedness owing to, the Borrower.
ARTICLE X
FINANCIAL COVENANTS
Each of the Guarantors and the Borrower jointly and severally covenants
and agrees that so long as any Commitment is outstanding and thereafter until
payment in full of all of the Loans and Letter of Credit Obligations, unless the
Requisite Lenders shall otherwise give prior written consent thereto:
10.01. Minimum Consolidated Net Worth. The Consolidated Net Worth of
the Borrower and its Subsidiaries at all times during any period set forth below
shall not be less than the minimum amount set forth opposite such period:
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<TABLE>
<CAPTION>
Period Minimum Amount
------ --------------
<S> <C>
From the Closing Date to but
excluding June 30, 1996 ($ 5,000,000)
From June 30, 1996 to but
excluding September 30, 1996 ($ 2,800,000)
From September 30, 1996 to but
excluding December 31, 1996 -0-
From December 31, 1996 to but
excluding March 31, 1997 $ 2,000,000
From March 31, 1997 to but
excluding June 30, 1997 $ 7,000,000
From June 30, 1997 to but
excluding September 30, 1997 $ 9,000,000
From September 30, 1997 to but
excluding December 31, 1997 $ 11,000,000
From December 31, 1997 to but
excluding March 31, 1998 $ 12,000,000
From March 31, 1998 to but
excluding June 30, 1998 $ 17,000,000
From June 30, 1998 to but
excluding September 30, 1998 $ 21,000,000
From September 30, 1998 to but
excluding December 31, 1998 $ 25,000,000
From December 31, 1998 to but
excluding March 31, 1999 $ 28,000,000
From March 31, 1999 to but
excluding June 30, 1999 $ 32,000,000
From June 30, 1999 to but
excluding September 30, 1999 $ 36,000,000
From September 30, 1999 to but
excluding December 31, 1999 $ 40,000,000
From December 31, 1999 to but
excluding March 31, 2000 $ 44,000,000
From March 31, 2000 to but
excluding June 30, 2000 $ 47,000,000
From June 30, 2000 to but
excluding September 30, 2000 $ 52,000,000
From September 30, 2000 to but
excluding December 31, 2000 $ 57,000,000
From December 31, 2000 to but
excluding March 31, 2001 $ 61,000,000
From March 31, 2001 to but
excluding June 30, 2001 $ 65,000,000
From June 30, 2001 to but
excluding September 30, 2001 $ 70,000,000
From September 30, 2001 to but
excluding December 31, 2001 $ 74,000,000
From December 31, 2001 to but
excluding March 31, 2002 $ 78,000,000
From March 31, 2002 to but
excluding June 30, 2002 $ 83,000,000
</TABLE>
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<TABLE>
<S> <C>
From June 30, 2002 to but
excluding September 30, 2002 $ 87,000,000
From September 30, 2002 to but
excluding December 31, 2002 $ 92,000,000
From December 31, 2002 to but
excluding March 31, 2003 $ 96,000,000
From March 31, 2003 to but
excluding June 30, 2003 $103,000,000
</TABLE>
10.02. Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as determined as of the last day of each fiscal quarter of the Borrower
set forth below for the twelve month period ending on such date (or if the
period from January 1, 1996 to such date is less than twelve months, such
shorter period), shall not be less than the minimum ratio set forth opposite
such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
Third fiscal quarter of 1996 0.20 to 1
Fourth fiscal quarter of 1996 0.20 to 1
First fiscal quarter of 1997 0.30 to 1
Second fiscal quarter of 1997 0.50 to 1
Third fiscal quarter of 1997 0.70 to 1
Fourth fiscal quarter of 1997 0.80 to 1
First fiscal quarter of 1998 0.90 to 1
Second fiscal quarter of 1998 1.00 to 1
Third fiscal quarter of 1998 1.00 to 1
Fourth fiscal quarter of 1998 1.10 to 1
First fiscal quarter of 1999 1.20 to 1
Second fiscal quarter of 1999 1.20 to 1
Third fiscal quarter of 1999 1.30 to 1
Fourth fiscal quarter of 1999 1.30 to 1
First fiscal quarter of 2000 1.30 to 1
Second fiscal quarter of 2000 1.30 to 1
Third fiscal quarter of 2000 1.30 to 1
Fourth fiscal quarter of 2000 1.30 to 1
First fiscal quarter of 2001 1.30 to 1
Second fiscal quarter of 2001 1.30 to 1
Third fiscal quarter of 2001 1.30 to 1
Fourth fiscal quarter of 2001 1.30 to 1
First fiscal quarter of 2002 1.20 to 1
Second fiscal quarter of 2002 1.00 to 1
Third fiscal quarter of 2002 1.00 to 1
Fourth fiscal quarter of 2002 1.00 to 1
First fiscal quarter of 2003 1.00 to 1
Second fiscal quarter of 2003 1.00 to 1
</TABLE>
10.03. Minimum Interest Coverage Ratio. The Interest Coverage Ratio, as
determined as of the last day of each fiscal quarter of the Borrower set forth
below for the twelve month
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period ending on such date (or if the period from January 1, 1996 to such date
is less than twelve months, such shorter period), shall not be less than the
minimum ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
Second fiscal quarter of 1996 1.50 to 1
Third fiscal quarter of 1996 1.50 to 1
Fourth fiscal quarter of 1996 1.50 to 1
First fiscal quarter of 1997 1.50 to 1
Second fiscal quarter of 1997 1.75 to 1
Third fiscal quarter of 1997 1.75 to 1
Fourth fiscal quarter of 1997 1.75 to 1
First fiscal quarter of 1998 1.75 to 1
Second fiscal quarter of 1998 2.00 to 1
Third fiscal quarter of 1998 2.00 to 1
Fourth fiscal quarter of 1998 2.25 to 1
First fiscal quarter of 1999 2.25 to 1
Second fiscal quarter of 1999 2.50 to 1
Third fiscal quarter of 1999 2.50 to 1
Fourth fiscal quarter of 1999 2.50 to 1
First fiscal quarter of 2000 2.50 to 1
Second fiscal quarter of 2000 2.50 to 1
Third fiscal quarter of 2000 2.50 to 1
Fourth fiscal quarter of 2000 2.50 to 1
First fiscal quarter of 2001 2.50 to 1
Second fiscal quarter of 2001 2.50 to 1
Third fiscal quarter of 2001 2.50 to 1
Fourth fiscal quarter of 2001 2.50 to 1
First fiscal quarter of 2002 2.50 to 1
Second fiscal quarter of 2002 2.50 to 1
Third fiscal quarter of 2002 2.50 to 1
Fourth fiscal quarter of 2002 2.50 to 1
First fiscal quarter of 2003 2.50 to 1
Second fiscal quarter of 2003 2.50 to 1
</TABLE>
10.04. Maximum Capital Expenditures. Capital Expenditures made or
incurred by the Borrower and the Borrower's Subsidiaries (other than the
Discontinued Operations) on a consolidated basis during each Fiscal Year set
forth below shall not exceed in the aggregate the amount set forth opposite such
Fiscal Year:
<TABLE>
<CAPTION>
Fiscal Year Maximum Amount
----------- --------------
<S> <C>
Fiscal Year 1996 $20,000,000
Fiscal Year 1997 $20,000,000
Fiscal Year 1998 $20,000,000
Fiscal Year 1999 $20,000,000
Fiscal Year 2000 $20,000,000
Fiscal Year 2001 $20,000,000
</TABLE>
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<TABLE>
<S> <C>
Fiscal Year 2002 $20,000,000
Fiscal Year 2003 $20,000,000
</TABLE>
provided, however, that to the extent that actual Capital Expenditures for any
such Fiscal Year shall be less than the maximum amount set forth above for such
Fiscal Year (without giving effect to the carryover permitted by this proviso),
the difference between said stated maximum amount and such actual Capital
Expenditures shall, in addition, be available for Capital Expenditures in the
next succeeding Fiscal Year.
Capital Expenditures made or incurred by the Discontinued Operations during each
Fiscal Year shall not exceed in the aggregate $10,000,000 in Fiscal Year 1996,
and $7,000,000 thereafter.
10.05. Maximum Permitted Senior Debt Ratio. The ratio of (i) Permitted
Senior Debt of the Borrower and its Subsidiaries on a consolidated basis on the
last day of such period to (ii) EBITDA of the Borrower and its Subsidiaries
(other than the Discontinued Operations) on a consolidated basis for such
period, as determined as of the last day of each fiscal quarter of the Borrower
set forth below for the twelve month period ending on such date, shall not be
greater than the maximum ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Maximum Ratio
-------------- -------------
<S> <C>
Fourth fiscal quarter of 1996 3.25 to 1
First fiscal quarter of 1997 3.00 to 1
Second fiscal quarter of 1997 2.75 to 1
Third fiscal quarter of 1997 2.75 to 1
Fourth fiscal quarter of 1997 2.00 to 1
First fiscal quarter of 1998 2.00 to 1
Second fiscal quarter of 1998 2.00 to 1
Third fiscal quarter of 1998 2.00 to 1
Fourth fiscal quarter of 1998 2.00 to 1
First fiscal quarter of 1999 1.75 to 1
Second fiscal quarter of 1999 1.75 to 1
Third fiscal quarter of 1999 1.75 to 1
Fourth fiscal quarter of 1999 1.75 to 1
First fiscal quarter of 2000 1.50 to 1
Second fiscal quarter of 2000 1.50 to 1
Third fiscal quarter of 2000 1.50 to 1
Fourth fiscal quarter of 2000 1.50 to 1
First fiscal quarter of 2001 1.25 to 1
Second fiscal quarter of 2001 1.25 to 1
Third fiscal quarter of 2001 1.25 to 1
Fourth fiscal quarter of 2001 1.25 to 1
First fiscal quarter of 2002 1.25 to 1
Second fiscal quarter of 2002 1.25 to 1
Third fiscal quarter of 2002 1.25 to 1
</TABLE>
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<TABLE>
<S> <C>
Fourth fiscal quarter of 2002 1.25 to 1
First fiscal quarter of 2003 1.25 to 1
Second fiscal quarter of 2003 1.25 to 1
</TABLE>
10.06. Maximum Permitted Total Debt Ratio. The ratio of (i) Permitted
Total Debt of the Borrower and its Subsidiaries on a consolidated basis for such
period to (ii) EBITDA of the Borrower and its Subsidiaries (other than the
Discontinued Operations) on a consolidated basis for such period, as determined
as of the last day of each fiscal quarter of the Borrower set forth below for
the twelve month period ending on such date, shall not be greater than the
maximum ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Maximum Ratio
-------------- -------------
<S> <C>
Fourth fiscal quarter of 1996 5.75 to 1
First fiscal quarter of 1997 5.50 to 1
Second fiscal quarter of 1997 5.25 to 1
Third fiscal quarter of 1997 5.25 to 1
Fourth fiscal quarter of 1997 4.25 to 1
First fiscal quarter of 1998 4.00 to 1
Second fiscal quarter of 1998 4.00 to 1
Third fiscal quarter of 1998 4.00 to 1
Fourth fiscal quarter of 1998 4.00 to 1
First fiscal quarter of 1999 3.75 to 1
Second fiscal quarter of 1999 3.75 to 1
Third fiscal quarter of 1999 3.75 to 1
Fourth fiscal quarter of 1999 3.75 to 1
First fiscal quarter of 2000 3.50 to 1
Second fiscal quarter of 2000 3.50 to 1
Third fiscal quarter of 2000 3.50 to 1
Fourth fiscal quarter of 2000 3.50 to 1
First fiscal quarter of 2001 3.25 to 1
Second fiscal quarter of 2001 3.00 to 1
Third fiscal quarter of 2001 3.00 to 1
Fourth fiscal quarter of 2001 3.00 to 1
First fiscal quarter of 2002 3.00 to 1
Second fiscal quarter of 2002 3.00 to 1
Third fiscal quarter of 2002 3.00 to 1
Fourth fiscal quarter of 2002 3.00 to 1
First fiscal quarter of 2003 3.00 to 1
Second fiscal quarter of 2003 3.00 to 1
</TABLE>
ARTICLE XI
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
11.01. Events of Default. Each of the following occurrences shall
constitute an Event of Default hereunder:
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(a) Failure to Make Payments When Due. The Borrower shall fail to pay
(i) when due any principal or interest on the Loans (including the Reimbursement
Obligations) or (ii) any other Obligation, and if such non-payment relates to
interest, such non-payment continues for a period of three (3) days after the
due date thereof or (y) to Obligations other than interest or principal, such
non-payment continues for a period of five (5) Business Days after the due date
thereof.
(b) Breach of Certain Covenants. The Borrower or any Guarantor shall
fail to perform or observe duly and punctually any agreement, covenant or
obligation binding on such Person under (i) Sections 7.02 (and such failure
continues for five (5) Business Days), 7.03 (and such failure continues for five
(5) Business Days), 8.01, 8.02 (and such failure continues for five (5) Business
Days), 8.06 (and such failure continues for five (5) Business Days), 8.07 (and
such failure continues for five (5) Business Days); or (ii) Article IX or
Article X.
(c) Breach of Representation or Warranty. Any representation or
warranty made or deemed made by the Borrower, any Guarantor or any other
Subsidiary of the Borrower to the Agent, any Lender or any Issuing Bank herein
or in any other Loan Document or in any statement or certificate at any time
given by any such Person pursuant to any Loan Document shall be false or
misleading in any material respect on the date made (or deemed made).
(d) Other Defaults. The Borrower shall default in the performance of or
compliance with any term contained herein (other than as covered by paragraphs
(a), (b) or (c) of this Section 11.01) or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any other Loan Document (each, a "Non-Material Default"), and such
default shall continue for (i) ten (10) Business Days after the occurrence
thereof with respect to any term contained in Sections 7.01, 7.05, 7.06 and
7.07; and (ii) thirty (30) days after the occurrence thereof with respect to any
other term.
(e) Default as to Other Indebtedness; Operating Leases. The Borrower or
any of its Subsidiaries shall fail to make any payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) with
respect to Indebtedness evidenced by, or in respect of, principal and interest
on the Subordinated Notes or any other Indebtedness (other than an Obligation)
in excess of $5,000,000; or any breach, default or event of default shall occur,
or any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, in each case after the passage of any
applicable notice or grace period, if the effect thereof is to cause an
acceleration, mandatory redemption
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or other required repurchase of such Indebtedness, or permit the holder(s) of
such Indebtedness to accelerate the maturity of such Indebtedness or require the
redemption or other repurchase of such Indebtedness; or any such Indebtedness
shall be otherwise declared to be due and payable (by acceleration or otherwise)
or required to be prepaid, redeemed or otherwise repurchased by the Borrower or
any of its Subsidiaries (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; or any breach, default or
event of default remaining uncured for a period of sixty (60) days on the part
of the Borrower or any of its Subsidiaries shall occur under any Operating Lease
to which the Borrower or any of its Subsidiaries is a party pursuant to which
rental payments thereunder equal or exceed $5,000,000 per annum.
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against the Borrower or any
of the Borrower's Subsidiaries and the petition shall not be dismissed, stayed,
bonded or discharged within sixty (60) days after commencement of the case; or a
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of the Borrower or any of its Subsidiaries in an involuntary
case, under any applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect; or any other similar relief shall be granted under any
applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee, custodian
or other officer having similar powers over the Borrower or any of its
Subsidiaries or over all or a substantial part of the Property of the Borrower
or any of its Subsidiaries shall be entered; or an interim receiver, trustee or
other custodian of the Borrower or any of its Subsidiaries or of all or a
substantial part of the property of the Borrower or any of its Subsidiaries
shall be appointed or a warrant of attachment, execution or similar process
against any substantial part of the Property of the Borrower or any of its
Subsidiaries shall be issued and any such event shall not be stayed, dismissed,
bonded or discharged within sixty (60) days after entry, appointment or
issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or
any of its Subsidiaries shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a
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substantial part of its property; or the Borrower or any of its Subsidiaries
shall make any assignment for the benefit of creditors.
(h) Judgments. Any judgment (other than any judgment resulting from the
IIC Reinstatement), writ, order or warrant of attachment, or other similar
process shall be rendered against the Borrower or any of its Subsidiaries or any
of their respective assets involving in any single case or in the aggregate an
amount in excess of the Judgment Amount which is (are) entered and remains
undischarged, unvacated and unstayed for a period of sixty (60) days.
(i) Dissolution. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries, decreeing its involuntary dissolution
or other similar proceeding, and such order shall remain undischarged and
unstayed for a period in excess of sixty (60) days; or the Borrower or any of
its Subsidiaries shall otherwise dissolve or cease to exist except as
specifically permitted hereby.
(j) Loan Documents; Failure of Security. At any time, for any reason,
(i) any Loan Document ceases to be in full force and effect or the Borrower or
any of the Borrower's Subsidiaries party thereto seeks to repudiate its
obligations thereunder and the Liens intended to be created thereby are, or the
Borrower or any such Subsidiary seeks to render such Liens, invalid or
unperfected, or (ii) Liens in favor of the Agent, the Issuing Banks and/or the
Lenders contemplated by the Loan Documents shall, at any time, for any reason,
be invalidated or otherwise cease to be in full force and effect, or such Liens
shall be subordinated or shall not have the priority contemplated hereby or by
the other Loan Documents, unless the Agent shall determine (in writing, with a
copy to each Lender) in its sole discretion that any occurrences referred to in
this Section 11.01(j) are not, in the aggregate, material.
(k) Termination Event. Any Termination Event occurs which the Agent
reasonably believes could subject either the Borrower or any ERISA Affiliate to
a material liability.
(l) Waiver of Minimum Funding Standard. If the plan administrator of
any Plan applies under Section 412(d) of the Internal Revenue Code for a waiver
of the minimum funding standards of Section 412(a) of the Internal Revenue Code
and the Agent reasonably believes the substantial business hardship upon which
the application for the waiver is based could subject either the Borrower or any
ERISA Affiliate to a material liability.
(m) Change of Control. A Change of Control shall occur with respect to
the Borrower.
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(n) Material Adverse Change. An event shall exist or occur which has
(x) a Material Adverse Effect or (y) a material adverse effect upon (1) the
ability of the Borrower or any of the Borrower's Subsidiaries to perform any of
their material obligations under the Loan Documents or (2) the ability of the
Lenders, the Issuing Banks or the Agent to enforce the Loan Documents.
An Event of Default shall be deemed "continuing" until cured or waived in
accordance with Section 14.07.
11.02. Rights and Remedies.
(a) Acceleration and Termination. Upon the occurrence of any Event of
Default described in Sections 11.01(f) or 11.01(g), the Commitments shall
automatically and immediately terminate and the unpaid principal amount of, and
any and all accrued interest on, the Obligations and all accrued fees shall
automatically become immediately due and payable, without presentment, demand,
or protest or other requirements of any kind (including, without limitation,
valuation and appraisement, diligence, presentment, notice of intent to demand
or accelerate and of acceleration), all of which are hereby expressly waived by
the Borrower; and upon the occurrence and during the continuance of any other
Event of Default, the Agent shall at the request, or may with the consent, of
the Requisite Lenders, by written notice to the Borrower, (i) declare that all
or any portion of the Commitments are terminated, whereupon the Commitments and
the obligation of each Lender to make any Loan hereunder and of each Lender or
Issuing Bank to issue or participate in any Letter of Credit not then issued
shall immediately terminate, and/or (ii) declare the unpaid principal amount of
and any and all accrued and unpaid interest on the Obligations to be, and the
same shall thereupon be, immediately due and payable, without presentment,
demand, or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate and of acceleration), all of which are hereby expressly
waived by the Borrower.
(b) Deposit for Letters of Credit. In addition, after the occurrence
and during the continuance of an Event of Default, the Borrower shall, promptly
upon demand by the Agent (given upon the written instructions of the Requisite
Lenders or, in the absence of such instructions, in its sole discretion),
deliver to the Agent, Cash Collateral in such form as requested by the Agent,
together with such endorsements, and execution and delivery of such documents
and instruments, as the Agent may request in order to perfect or protect the
Agent's Lien with respect thereto, in an aggregate principal amount equal to the
then outstanding Letter of Credit Obligations.
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(c) Rescission. If at any time after termination of the Commitments
and/or acceleration of the maturity of the Loans, the Borrower shall pay all
arrears of interest and all payments on account of principal of the Loans and
Reimbursement Obligations which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified herein) and all Events of Default and
Defaults (other than nonpayment of principal of and accrued interest on the
Loans due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to Section 14.07, then upon the written consent of the Requisite
Lenders and written notice to the Borrower, the termination of the Commitments
and/or the acceleration and the consequences of such termination and/or
acceleration may be rescinded and annulled; but such action shall not affect any
subsequent Event of Default or Default or impair any right or remedy consequent
thereon. The provisions of the preceding sentence are intended merely to bind
the Lenders and the Issuing Banks to a decision which may be made at the
election of the Requisite Lenders; they are not intended to benefit the Borrower
and do not give the Borrower the right to require the Lenders to rescind or
annul any acceleration hereunder, even if the conditions set forth herein are
met.
(d) Enforcement. The Borrower acknowledges that in the event the
Borrower or any of the Borrower's Subsidiaries fails to perform, observe or
discharge any of its respective obligations or liabilities hereunder or under
any other Loan Document, any remedy of law may prove to be inadequate relief to
the Agent, the Issuing Banks and the Lenders; therefore, the Borrower agrees
that the Agent, the Issuing Banks and the Lenders shall be entitled after the
occurrence and during the continuance of an Event of Default to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
11.03. The Cash Collateral Account. (a) If requested by the Borrower
and subject to the right of the Agent to withdraw funds from the Cash Collateral
Account as provided below, the Agent shall, so long as no Event of Default shall
have occurred and be continuing, from time to time invest funds on deposit in
the Cash Collateral Account and accrued interest thereon, reinvest proceeds of
any such investments which may mature or be sold, and invest interest or other
income received from any such investments, in each case in such Cash Equivalents
as the Borrower may select (it being understood and agreed that the Agent shall
have at all times a perfected first-priority security interest in all such Cash
Equivalents, for the benefit of the Agent, the Issuing Banks, the Lenders and
the other Holders). Such funds, interest, proceeds or income which are not so
invested or reinvested in Cash Equivalents shall, except as otherwise provided
in this Section 11.03, be deposited and held
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by the Agent in the Cash Collateral Account. None of the Agent, any Lender or
any Issuing Bank shall be liable to the Borrower for, or with respect to, any
decline in value of amounts on deposit in the Cash Collateral Account which
shall have been invested pursuant to this Section 11.03(a) at the direction of
the Borrower. Cash Equivalents from time to time purchased and held pursuant to
this Section 11.03(a) shall constitute Cash Collateral and shall, for purposes
of this Agreement, be deemed to be part of the funds held in the Cash Collateral
Account in amounts equal to their respective outstanding principal amounts.
(b) The Agent may, at any time after an Event of Default has occurred
and is continuing, sell or cause to be sold any Cash Equivalents being held by
the Agent as Cash Collateral at any broker's board or at public or private sale,
in one or more sales or lots, at such price as the Agent may deem best, without
assumption of any credit risk, and the purchaser of any or all such Cash
Equivalents so sold shall thereafter own the same, absolutely free from any
claim, encumbrance or right of any kind whatsoever. The Agent, any of the
Lenders and any of the Issuing Banks may, in its own name or in the name of a
designee or nominee, buy such Cash Equivalents at any public sale and, if
permitted by applicable law, buy such Cash Equivalents at any private sale. The
Agent shall apply the proceeds of any such sale, net of any expenses incurred in
connection therewith, and any other funds deposited in the Cash Collateral
Account, to the payment of the Obligations in accordance with this Agreement.
The Borrower agrees that (i) any sale of Cash Equivalents conducted in
conformity with reasonable commercial practices of banks, commercial finance
companies, insurance companies or other financial institutions disposing of
property similar to such Cash Equivalents shall be deemed to be commercially
reasonable and (ii) any requirements of reasonable notice shall be met if such
notice is received by the Borrower at its notice address on the signature pages
hereto at least ten (10) Business Days before the time of the sale or
disposition. Any other requirement of notice, demand or advertisement for sale
is waived to the extent permitted by law. The Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(c) Notwithstanding anything to the contrary contained in this
Agreement, none of the Borrower or any Person or entity claiming on behalf of or
through the Borrower shall have any right to withdraw any of the funds held in
the Cash Collateral Account, except that, (i) promptly following the Borrower's
electronic or telephonic notification to the Agent of the amount to be so
withdrawn, the Agent (unless a Default or an Event of Default shall have
occurred and be continuing and the Agent (at the direction of the Requisite
Lenders or, in the absence of such direction, in its sole discretion) shall have
delivered a written
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notice to the Borrower to the effect that the Borrower may no longer withdraw
amounts from the Cash Collateral Account, (such notice, a "Blockage Notice")
shall (to the extent such funds are then immediately available in the Cash
Collateral Account) transfer to the Disbursement Account funds in an amount
equal to the lesser of (1) the amount indicated in such electronic or telephonic
notification and (2) the aggregate amount of funds then available in the Cash
Collateral Account (it being understood and agreed that such funds may be used
for such purposes as proceeds of Revolving Loans may be used in accordance with
Section 2.02(d)) and (ii) upon the payment in full in cash of the Obligations
and termination of the Commitments, any funds remaining in the Cash Collateral
Account shall be returned by the Agent to the Borrower or paid by the Agent to
whomever may be legally entitled thereto.
(d) If at any time the Agent determines that any funds held in the Cash
Collateral Account are subject to any interest, right, claim or Lien of any
Person other than the Agent, the Borrower will, forthwith upon demand by the
Agent, pay to the Agent, as additional funds to be deposited and held in the
Cash Collateral Account, an amount equal to the amount of funds subject to such
interest, right, claim or Lien.
(e) The Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Agent accords its own like property,
it being understood that the Agent shall not have any responsibility for taking
any necessary steps to preserve rights against any parties with respect to any
such funds but may do so at its option. All expenses incurred in connection
therewith shall be for the sole account of the Borrower and shall constitute
Obligations hereunder.
ARTICLE XII
GUARANTIES
12.01. Guaranties. (a) In order to induce the Agent, the Lenders and
the Issuing Banks to enter into this Agreement, each of the Guarantors hereby
jointly and severally absolutely, unconditionally and irrevocably guarantees as
primary obligor and not merely as surety, the full and punctual payment when
due, whether at stated maturity or earlier, by reason of acceleration, mandatory
prepayment or otherwise in accordance herewith or any other Loan Document, of
all of the Obligations, whether or not from time to time reduced or extinguished
or hereafter increased or incurred, whether or not recovery may be or hereafter
may become barred by any statute of limitations, and whether enforceable or
unenforceable as against Borrower, now or hereafter existing, or due or to
become due including (without
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limitation) principal, interest (including interest at the contract rate
applicable upon default) accrued or accruing after the commencement of any
bankruptcy proceeding whether or not such interest is an allowed claim in such
proceeding), fees, and any and all expenses (including reasonable counsel fees
and expenses) incurred by the Agent, the Lenders or the Issuing Banks in
enforcing any of their rights hereunder (all amounts so guaranteed the
"Guaranteed Obligations").
(b) Each of the Guarantors further jointly and severally agrees that,
if any payment made by Borrower or any other Person and applied to the
Guaranteed Obligations is at any time annulled, avoided, set aside, rescinded,
invalidated, declared to be fraudulent or preferential or otherwise required to
be refunded or repaid, or the proceeds of Collateral are required to be returned
by the Agent, any of the Lenders, any of the Issuing Banks or any other Holders
to the Borrower, its estate, trustee, receiver or any other party, including,
without limitation, any Guarantor, under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
repayment, such Guarantor's liability hereunder (and any Lien or other
Collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
the relevant Guaranty shall have been cancelled or surrendered (and if any Lien
or other Collateral securing such Guarantor's liability hereunder shall have
been released or terminated by virtue of such cancellation or surrender), such
Guaranty (and such Lien or other Collateral) shall be reinstated in full force
and effect, and such prior cancellation or surrender shall not diminish,
release, discharge, impair or otherwise affect the obligations of such Guarantor
in respect of the amount of such payment (or any Lien or other Collateral
securing such obligation).
12.02. Authorization; Other Agreements. Subject to Section 14.07, the
Agent is hereby authorized by each Guarantor, without notice to or demand upon
any Guarantor, which notice or demand is expressly waived hereby, and without
discharging or otherwise affecting the obligations of the Guarantors hereunder
(which shall remain absolute and unconditional notwithstanding any such action
or omission to act), from time to time, to:
(a) supplement, renew, extend, accelerate or otherwise change the time
for payment of, or other terms relating to, the Guaranteed Obligations, or
otherwise modify, amend or change the terms of any promissory note or other
agreement, document or instrument (including, without limitation, the other Loan
Documents) now or hereafter executed by the Borrower and delivered to the Agent,
including, without limitation, any increase or decrease of principal or the rate
of interest thereon;
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(b) waive or otherwise consent to noncompliance with any provision of
any instrument evidencing the Guaranteed Obligations, or any part thereof, or
any other instrument or agreement in respect of the Guaranteed Obligations
(including, without limitation, the other Loan Documents) now or hereafter
executed by the Borrower and delivered to the Agent;
(c) accept partial payments on the Guaranteed Obligations;
(d) receive, take and hold additional security or collateral for the
payment of the Guaranteed Obligations and exchange, enforce, waive, substitute,
liquidate, terminate, abandon, fail to perfect, subordinate, transfer, otherwise
alter and release any such additional security or collateral;
(e) settle, release, compromise, collect or otherwise liquidate the
Guaranteed Obligations or accept, substitute, release, exchange or otherwise
alter, affect or impair any security or collateral for the Guaranteed
Obligations or any other guaranty therefor, in any manner;
(f) add, release or substitute any one or more other guarantors, makers
or endorsers of the Guaranteed Obligations and otherwise deal with the Borrower,
any Guarantor, or any other guarantor, maker or endorser;
(g) apply any and all payments or recoveries from the Borrower, from
any other Guarantor, or from any other guarantor, maker or endorser of the
Guaranteed Obligations to the Guaranteed Obligations in such order as provided
herein (as if such payments were from the Borrower) whether such Guaranteed
Obligations are secured or unsecured or guaranteed or not guaranteed by others;
(h) apply any and all payments or recoveries from any Guarantor of the
Guaranteed Obligations or sums realized from security furnished by any Guarantor
upon its indebtedness or obligations to the Agent, the Lenders or the Issuing
Banks, whether or not such indebtedness or obligations relate to the Guaranteed
Obligations; and
(i) refund at any time any payment received by the Agent in respect of
any Guaranteed Obligation, and payment to the Agent of the amount so refunded
shall be fully guaranteed hereby even though prior thereto the relevant Guaranty
shall have been cancelled or surrendered (or any release or termination of any
Collateral by virtue thereof) by the Agent, and such prior cancellation or
surrender shall not diminish, release, discharge, impair or otherwise affect the
obligations of any Guarantor hereunder in respect of the amount so refunded (and
any Collateral so released or terminated shall be reinstated with respect to
such obligations);
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even if any right of reimbursement or subrogation or other right or remedy of
any Guarantor is extinguished, affected or impaired by any of the foregoing
(including, without limitation, any election of remedies by reason of any
judicial, non-judicial or other proceeding in respect of the Guaranteed
Obligations which impairs any subrogation, reimbursement or other right of such
Guarantor).
12.03. Guaranty Absolute and Unconditional. Each Guarantor hereby
agrees that its obligations under the relevant Guaranty are absolute and
unconditional and shall not be discharged or otherwise affected as a result of:
(a) the invalidity or unenforceability of any of the Borrower's
obligations hereunder or of any other Loan Document or any other agreement or
instrument relating thereto, or any security for, or other guaranty of the
Guaranteed Obligations, or the lack of perfection or continuing perfection or
failure of priority of any security for the Guaranteed Obligations;
(b) the absence of any attempt to collect the Guaranteed Obligations
from the Borrower or other action to enforce the same;
(c) failure by the Agent to take any steps to perfect and maintain any
Lien on, or to preserve any rights to, any Collateral;
(d) the Agent's election, in any proceeding instituted under Chapter 11
of the Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(e) any borrowing or grant of a Lien by Borrower, as
debtor-in-possession, or extension of credit, under Section 364 of the
Bankruptcy Code;
(f) the disallowance, under Section 502 of the Bankruptcy Code, of all
or any portion of the Agent's or any Lender's claim(s) for repayment of the
Guaranteed Obligations;
(g) any use of cash collateral under Section 363 of the Bankruptcy
Code;
(h) any agreement or stipulation as to the provision of adequate
protection in any bankruptcy proceeding;
(i) the avoidance of any Lien in favor of the Agent, the Lenders, the
Issuing Banks or the other Holders for any reason;
(j) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution
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proceeding commenced by or against the Borrower or any of the Borrower's
Subsidiaries, including without limitation, any discharge of, or bar or stay
against collecting, all or any of the Guaranteed Obligations (or any interest
thereon) in or as a result of any such proceeding;
(k) failure by the Agent, any Lender or any Issuing Bank to file or
enforce a claim against the Borrower or its estate in any bankruptcy or
insolvency case or proceeding;
(l) any action taken by the Agent, any Lender or any Issuing Bank that
is authorized hereby;
(m) any election by the Agent, any Lender or any Issuing Bank under
Section 9-501(4) of the Uniform Commercial Code as to the Collateral; or
(n) any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor or any other obligor on
any obligations, other than the payment in full of the Guaranteed Obligations.
12.04. Waivers. Each Guarantor hereby waives diligence, promptness,
presentment, demand for payment or performance and protest and notice of
protest, notice of acceptance and any other notice in respect of the Guaranteed
Obligations, and any defense arising by reason of any disability or other
defense of the Borrower. No Guarantor shall, until the Guaranteed Obligations
are irrevocably paid in full and the Commitments have been terminated, assert
any claim or counterclaim it may have against the Borrower or set off any of its
obligations to the Borrower against any obligations of the Borrower to it. In
connection with the foregoing, each Guarantor jointly and severally covenants
that its obligations hereunder shall not be discharged, except by complete
performance.
12.05. Reliance. Each Guarantor hereby assumes responsibility for
keeping itself informed of the financial condition of the Borrower, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal and each
Guarantor hereby agrees that the Agent shall not have any duty whatsoever to
advise such Guarantor of information known to the Agent regarding such condition
or any such circumstances.
12.06. Waiver of Subrogation and Contribution Rights. Until the
Obligations shall have been paid in full, each Guarantor hereby agrees that it
(i) shall have no right of subrogation with respect to such Obligations (under
contract, Section 509 of the Bankruptcy Code or otherwise) or any other right of
indemnity, reimbursement or contribution, and (ii) hereby waives any right to
enforce any remedy which the Agent,
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any of the Lenders or any of the Issuing Banks now have or may hereafter have
against the Borrower, any endorser or any other guarantor of all or any part of
the Obligations or any other Person, and each Guarantor hereby waives any
benefit or, any right to participate in, any security or collateral given to the
Agent, the Lenders and the Issuing Banks to secure the payment or performance of
all or any part of the Obligations or any other liability of the Borrower to the
Agent, the Lenders and the Issuing Banks.
12.07. Subordination. Each Guarantor hereby agrees that any
Indebtedness of the Borrower now or hereafter owing to such Guarantor, is hereby
subordinated to all of the Guaranteed Obligations, whether heretofore, now or
hereafter created (the "Guarantor Subordinated Debt"), and that the Guarantor
Subordinated Debt shall not be paid in whole or in part except as otherwise
permitted under this Agreement until the Guaranteed Obligations have been paid
in full and this Agreement has been terminated and is of no further force or
effect. No Guarantor shall accept any payment of or on account of any Guarantor
Subordinated Debt at any time in contravention of the foregoing. Upon the
occurrence and during the continuance of an Event of Default, the Borrower shall
pay to the Agent any payment of all or any part of the Guarantor Subordinated
Debt and any amount so paid to the Agent shall be applied to payment of the
Guaranteed Obligations. Each payment on the Guarantor Subordinated Debt received
in violation of any of the provisions hereof shall be deemed to have been
received by the relevant Guarantor as trustee for the Holders and shall be paid
over to the Agent immediately on account of the Guaranteed Obligations, but
without otherwise affecting in any manner such Guarantors' liability hereunder.
Each Guarantor agrees to file all claims against the Borrower in any bankruptcy
or other proceeding in which the filing of claims is required by law in respect
of any Guarantor Subordinated Debt, and the Agent shall be entitled to all of
such Guarantor's rights thereunder. If for any reason any Guarantor fails to
file such claim at least thirty (30) days prior to the last date on which such
claim should be filed, such Guarantor hereby irrevocably appoints the Agent as
its true and lawful attorney-in-fact and the Agent is hereby authorized to act
as attorney-in-fact in such Guarantor's name to file such claim, or, in the
Agent's discretion, to assign such claim to and cause proof of claim to be filed
in the name of the Agent or its nominee. In all such cases, whether in
administration, bankruptcy or otherwise, the Person or Persons authorized to pay
such claim shall pay to the Agent the full amount payable on the claim in the
proceeding, and, to the full extent necessary for that purpose, each Guarantor
hereby assigns to the Agent all of such Guarantor's rights to any payments or
distributions to which such Guarantor otherwise would be entitled. If the amount
so paid is greater than such Guarantors' liability hereunder, the Agent shall
pay the excess amount to the party otherwise entitled
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thereto. In addition, each Guarantor hereby appoints the Agent as its
attorney-in-fact to exercise all of such Guarantor's voting rights in connection
with any bankruptcy proceeding or any plan for the reorganization of the
Borrower.
12.08. Default; Remedies. The obligations of each Guarantor hereunder
are independent of and separate from the Guaranteed Obligations. If any of the
Guaranteed Obligations are not paid when due, or upon any Event of Default
hereunder or under any default by the Borrower as provided in any other
instrument or document evidencing all or any part of the Guaranteed Obligations,
the Agent may, at its sole election, proceed directly and at once, without
notice, against any or all of the Guarantors to collect and recover the full
amount or any portion of the Guaranteed Obligations then due, without first
proceeding against the Borrower, any other Guarantor(s), or any other guarantor
of the Guaranteed Obligations, or against any Collateral under the Loan
Documents or joining the Borrower, any other Guarantor(s), or any other
guarantor in any proceeding against one or more of the Guarantors. At any time
after maturity of the Guaranteed Obligations, the Agent may (unless the
Guaranteed Obligations have been paid in full in cash or other immediately
available funds), without notice to any Guarantor and regardless of the
acceptance of any Collateral for the payment hereof, appropriate and apply
toward the payment of the Guaranteed Obligations (i) any indebtedness due or to
become due from the Agent, any Lender or any Issuing Bank to such Guarantor and
(ii) any moneys, credits or other property belonging to such Guarantor at any
time held by or coming into the possession of the Agent, any Lender or any of
their respective Affiliates.
12.09. Irrevocability. Each Guaranty shall be irrevocable as to any and
all of the Guaranteed Obligations until this Agreement has been terminated and
all monetary Guaranteed Obligations then outstanding have been irrevocably
repaid in cash, at which time each Guaranty shall automatically be cancelled;
provided that, notwithstanding anything contained in this Agreement to the
contrary, the Guaranty of Varo hereunder and all obligations of Varo under this
Agreement shall automatically be cancelled upon the sale of all or substantially
all of the Capital Stock or assets of Varo in accordance with clause (viii) of
Section 9.02 and the application of the Net Cash Proceeds thereof in accordance
with Section 3.01(b)(i). Upon any such cancellation and at the written request
of the relevant Guarantor or its successors or assigns, and at the cost and
expense of such Guarantor or its successors or assigns, such Person shall cease
to be a party to this Agreement and the Agent shall execute in a timely manner a
satisfaction of the relevant Guaranty and such instruments, documents or
agreements as are necessary or desirable in connection with the termination of
such Guaranty and the cancellation of such obligations.
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12.10. Limitation on Guaranteed Amounts. Notwithstanding anything
contained in this Agreement to the contrary, the amount guaranteed by each
Guarantor hereunder shall be limited to an aggregate amount which is equal to
the largest amount that would not be subject to avoidance under Section 548 of
the Bankruptcy Code or any applicable provisions of any comparable state law.
12.11. Certain California Law Matters. Each Guarantor understands that
such Guarantor shall be liable for the full amount of its liability under its
Guaranty, notwithstanding the foreclosure of any Real Property securing all or
any part of the Guaranteed Obligations by trustee sale or any other reason
impairing the right of such Guarantor, the Agent, any of the Lenders, any of the
Issuing Banks, or any other Holders to proceed against the Borrower or the
Property of the Borrower or any of the Borrower's Subsidiaries. Each Guarantor
hereby agrees that all of its obligations under its Guaranty (including its
obligation to pay in full all Indebtedness evidenced by or arising under this
Agreement) shall remain in full force and effect, without defense, offset or
counterclaim of any kind, notwithstanding that such Guarantor's rights against
the Borrower may be impaired, destroyed, or otherwise affected by reason of any
action or inaction on the part of the Agent or any other Holder. By way of
example and without limitation of the foregoing, if the Agent or any other
Holder shall release or foreclose by private power of sale any Real Property
which is security for the Guaranteed Obligations, then notwithstanding that the
Borrower may be entitled thereby to assert a defense against such Guaranteed
Obligations (and thus also against its obligations to the Guarantors to the
extent that the Guarantors may be subrogated to the rights of the Lender) based
upon the applicability of California Code of Civil Procedure Section 580d or
other antideficiency laws, each Guarantor waives any defense to its obligations
hereunder it may have thereby, and each Guarantor shall remain fully obligated
under its Guaranty. Each Guarantor hereby waives all defenses, protections, and
benefits of Sections 580a, 580b, 580d, and 726 of the California Code of Civil
Procedure, and all judicial decisions construing or pertaining to the same, and
all rules and principles of like kind or similar effect (including without
limitation the so-called one-action rule, the one-form-of-action rule, and the
security- first rule), in each case as applicable to or in favor of any
Guarantor, the Borrower, or otherwise. Each Guarantor represents and warrants
that it has consulted with its legal counsel regarding all waivers under its
Guaranty, that it believes that it fully understands all rights that it is
waiving and the effect of such waivers, that it assumes the risk of any
misunderstanding that it may have regarding any of the foregoing, and that it
intends that such waivers shall be a material inducement to the Agent, the
Lenders and the Issuing Banks to enter into this Agreement and to extend the
Loans and issue the Letters of
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Credit. In addition, each Guarantor hereby waives, to the fullest extent
permitted by law, without limiting the generality of the foregoing or any other
provision hereof, all rights and benefits under California Civil Code Sections
2810, 2819, 2839, 2845, 2849, 2850, 2899, and 3433 (and any similar law in any
other jurisdiction).
ARTICLE XIII
THE AGENT
13.01. Appointment. (a) Each Lender and each Issuing Bank hereby
designates and appoints Citicorp as the Agent hereunder, and each Lender and
each Issuing Bank hereby irrevocably authorizes the Agent to execute such
documents (including, without limitation, the Transaction Documents to which the
Agent is a party) and to take such other action on such Person's behalf under
the provisions hereof and of the Loan Documents and to exercise such powers as
are set forth herein or therein together with such other powers as are
reasonably incidental thereto. As to any matters not expressly provided for
hereby (including, without limitation, enforcement or collection of the Notes or
any amount payable under any provision of Article III when due) or the other
Loan Documents, the Agent shall not be required to exercise any discretion or
take any action. Notwithstanding the foregoing, the Agent shall be required to
act or refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Requisite Lenders (unless
the instructions or consent of the Requisite Lenders or all of the Lenders is
required hereunder or thereunder) and such instructions shall be binding upon
all Lenders, Issuing Banks and Holders; provided, however, the Agent shall not
be required to take any action which (i) the Agent reasonably believes shall
expose it to personal liability unless the Agent receives an indemnification
satisfactory to it from the Lenders with respect to such action or (ii) is
contrary hereto, to the other Loan Documents or applicable law. The Agent agrees
to act as such on the express conditions contained in this Article XIII.
(b) The provisions of this Article XIII are solely for the benefit of
the Agent, the Lenders and Issuing Banks, and none of the Borrower or any
Subsidiary of the Borrower shall have any rights to rely on or enforce any of
the provisions hereof (other than as expressly set forth in Sections 13.07 and
13.09). In performing its functions and duties hereunder, the Agent shall act
solely as agent of the Lenders and the Issuing Banks and does not assume and
shall not be deemed to have assumed any obligation or relationship of agency,
trustee or fiduciary with or for the Borrower or any Subsidiary of the Borrower.
The Agent may perform any of its duties hereunder, or under the Loan Documents,
by or through its agents or employees.
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13.02. Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth herein or in the Loan
Documents. The duties of the Agent shall be mechanical and administrative in
nature. The Agent shall not have by reason hereof a fiduciary relationship in
respect of any Holder. Nothing herein or in any of the Loan Documents, expressed
or implied, is intended to or shall be construed to impose upon the Agent any
obligations in respect hereof or any of the Loan Documents except as expressly
set forth herein or therein. Each Lender and each Issuing Bank shall make its
own independent investigation of the financial condition and affairs of the
Borrower and its Subsidiaries in connection with the making and the continuance
of the Loans hereunder and with the issuance of the Letters of Credit and shall
make its own appraisal of the creditworthiness of the Borrower and its
Subsidiaries initially and on a continuing basis, and the Agent shall not have
any duty or responsibility, either initially or on a continuing basis, to
provide any Holder with any credit or other information with respect thereto
(except for reports required to be delivered by the Agent under the terms
hereof). If the Agent seeks the consent or approval of any of the Lenders to the
taking or refraining from taking of any action hereunder, the Agent shall send
notice thereof to each Lender. The Agent shall promptly notify each Lender at
any time that the Lenders so required hereunder have instructed the Agent to act
or refrain from acting pursuant hereto.
13.03. Rights, Exculpation, Etc. (a) Liabilities; Responsibilities.
None of the Agent or any Affiliate of the Agent, nor any of their respective
officers, directors, employees or agents shall be liable to any Holder for any
action taken or omitted by them hereunder or under any of the Loan Documents, or
in connection therewith, except that no Person shall be relieved of any
liability imposed by law for gross negligence or willful misconduct. The Agent
shall not be liable for any apportionment or distribution of payments made by it
in good faith pursuant to Section 3.02(b), and if any such apportionment or
distribution is subsequently determined to have been made in error the sole
recourse of any Holder to whom payment was due, but not made, shall be to
recover from other Holders any payment in excess of the amount to which they are
determined to have been entitled. The Agent shall not be responsible to any
Holder for any recitals, statements, representations or warranties herein or for
the execution, effectiveness, genuineness, validity, legality, enforceability,
collectibility, or sufficiency hereof or of any of the other Loan Documents or
the transactions contemplated thereby, or for the financial condition of the
Borrower or any of its Subsidiaries. Except as provided in the third sentence of
Section 13.01(a), the Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions hereof or of any of the Loan Documents or the financial condition of
the Borrower or any of
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its Subsidiaries, or the existence or possible existence of any Default or Event
of Default.
(b) Right to Request Instructions. The Agent may at any time request
instructions from the Lenders with respect to any actions or approvals which by
the terms of any of the Loan Documents the Agent is permitted or required to
take or to grant, and the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from any action or withholding
any approval under any of the Loan Documents until it shall have received such
instructions from those Lenders from whom the Agent is required to obtain such
instructions for the pertinent matter in accordance with the Loan Documents.
Without limiting the generality of the foregoing, no Holder shall have any right
of action whatsoever against the Agent as a result of the Agent acting (unless
the relevant action by the Agent results solely from the gross negligence or
willful misconduct of the Agent, as determined in a final, non-appealable
judgment by a court of competent jurisdiction) or refraining from acting under
the Loan Documents in accordance with the instructions of the Requisite Lenders
or, where required by the express terms hereof, (i) a greater proportion of the
Lenders or (ii) the Requisite Lenders.
13.04. Reliance. The Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person, and with respect to all matters
pertaining hereto or to any of the Loan Documents and its duties hereunder or
thereunder, upon advice of legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it.
13.05. Indemnification. To the extent that the Agent is not reimbursed
and indemnified by the Borrower, the Lenders shall reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of the Loan Documents or
any action taken or omitted by the Agent under the Loan Documents, in proportion
to each Lender's Pro Rata Share; provided, however, the Lenders shall have no
obligation to the Agent with respect to the matters indemnified pursuant to this
Section resulting from the willful misconduct or gross negligence of the Agent,
as determined in a final, non-appealable judgment by a court of competent
jurisdiction. The obligations of the Lenders under this Section 13.05 shall
survive the payment in full of the Loans, the
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Reimbursement Obligations and all other Obligations and the termination hereof.
13.06. Citicorp Individually. With respect to its Pro Rata Shares of
the Commitments hereunder, if any, and the Loans made by it, if any, Citicorp
shall have and may exercise the same rights and powers hereunder and is subject
to the same obligations and liabilities as and to the extent set forth herein
for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar
terms shall, unless the context clearly otherwise indicates, include Citicorp in
its individual capacity as a Lender or as one of the Requisite Lenders. Citicorp
and its Affiliates may accept deposits from, lend money to, and generally engage
in any kind of banking, trust or other business with the Borrower or any of its
Subsidiaries as if Citicorp were not acting as Agent pursuant hereto.
13.07. Successor Agent; Resignation of Agent. (a) Resignation. The
Agent may resign from the performance of its functions and duties hereunder at
any time by giving at least forty-five (45) Business Days' prior written notice
to the Borrower and the Lenders. The resignation of the Agent shall take effect
upon the acceptance by a successor Agent of appointment pursuant to this Section
13.07.
(b) Appointment by Requisite Lenders. Upon any such notice of
resignation by the Agent, the Requisite Lenders shall have the right to appoint
a successor Agent selected from among the Lenders which appointment shall be
subject to the prior written approval of the Borrower (which may not be
unreasonably withheld, and shall not be required upon the occurrence and during
the continuance of an Event of Default).
(c) Appointment by Retiring Agent. If a successor Agent shall not have
been appointed within the forty-five (45) Business Day period provided in
paragraph (a) of this Section 13.07, the retiring Agent, with the consent of the
Borrower (which may not be unreasonably withheld, and shall not be required upon
the occurrence and during the continuance of an Event of Default), shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Requisite Lenders appoint a successor Agent as provided above.
(d) Rights of the Successor and Retiring Agents. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder thereafter to be performed.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article XIII shall
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inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent hereunder.
13.08. Relations Among Lenders. Each Lender and each Issuing Bank
agrees that it shall not take any legal action, nor institute any actions or
proceedings, against the Borrower or any other obligor hereunder or with respect
to any Collateral without the prior written consent of the Requisite Lenders.
Without limiting the generality of the foregoing, no Lender may accelerate or
otherwise enforce its portion of the Obligations, or terminate its Commitments
except in accordance with Section 11.02(a) or a setoff permitted under Section
14.05.
13.09. Concerning the Collateral and the Loan Documents. (a) Protective
Advances. The Agent may from time to time, after the occurrence and during the
continuance of an Event of Default, make such disbursements and advances
pursuant to the Loan Documents which the Agent, in its sole discretion (subject
to the third sentence of Section 13.01(a)), deems necessary or desirable to
preserve or protect the Collateral or any portion thereof or to enhance the
likelihood or maximize the amount of repayment of the Loans and other
Obligations up to an amount not in excess of the lesser of the Revolving Credit
Availability at such time and $1,000,000 ("Protective Advances"). The Agent
shall notify the Borrower and each Lender in writing of each such Protective
Advance, which notice shall include a description of the purpose of such
Protective Advance. The Borrower agrees to pay the Agent, upon demand, the
principal amount of all outstanding Protective Advances, together with interest
thereon at the rate from time to time applicable to the Loans from the date of
such Protective Advance until the outstanding principal balance thereof is paid
in full. If the Borrower fails to make payment in respect of any Protective
Advance within one (1) Business Day after the date the Borrower receives written
demand therefor from the Agent, the Agent shall promptly notify each Revolving
Credit Lender and each Revolving Credit Lender agrees that it shall thereupon
make available to the Agent, in Dollars in immediately available funds, the
amount equal to such Lender's Revolving Credit Pro Rata Share of such Protective
Advance. If such funds are not made available to the Agent by such Lender within
one (1) Business Day after the Agent's demand therefor, the Agent shall be
entitled to recover any such amount from such Lender together with interest
thereon at the Federal Funds Rate for the first Business Day and thereafter at
the rate of interest applicable to Base Rate Loans during the period commencing
on the date of such demand and ending on the date such amount is received. The
failure of any Revolving Credit Lender to make available to the Agent its Pro
Rata Share of any such Protective Advance shall neither relieve any other
Revolving Credit Lender of its obligation hereunder to make available to the
Agent such other Lender's Revolving Credit Pro Rata Share of such Protective
Advance on the date such payment is to be made nor increase the
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obligation of any other Revolving Credit Lender to make such payment to the
Agent. All outstanding principal of, and interest on, Protective Advances shall
constitute Obligations secured by the Collateral until paid in full by the
Borrower.
(b) Authority. Each Lender and each Issuing Bank authorizes and directs
the Agent to enter into the Loan Documents relating to the Collateral for the
benefit of the Lenders and the Issuing Banks. Each Lender and each Issuing Bank
agrees that any action taken by the Agent or the Requisite Lenders (or, where
required by the express terms hereof, a different proportion of the Lenders) in
accordance with the provisions hereof or of the other Loan Documents, and the
exercise by the Agent or the Requisite Lenders (or, where so required, such
different proportion) of the powers set forth herein or therein, together with
such other powers as are reasonably incidental thereto, shall be authorized and
binding upon all of the Lenders and Issuing Banks. Without limiting the
generality of the foregoing, the Agent shall have the sole and exclusive right
and authority to (i) act as the disbursing and collecting agent for the Lenders
and the Issuing Banks with respect to all payments and collections arising in
connection herewith and with the Loan Documents relating to the Collateral; (ii)
execute and deliver each Loan Document relating to the Collateral and accept
delivery of each such agreement delivered by the Borrower or any of its
Subsidiaries; (iii) act as collateral agent for the Lenders and the Issuing
Banks for purposes of the perfection of all security interests and Liens created
by such agreements and all other purposes stated therein, provided, however, the
Agent hereby appoints, authorizes and directs each Lender and each Issuing Bank
to act as collateral sub-agent for the Agent, the Lenders and the Issuing Banks
for purposes of the perfection of all security interests and Liens with respect
to the Borrower's and its Subsidiaries' respective deposit accounts maintained
with, and cash and Cash Equivalents held by, such Lender or such Issuing Bank;
(iv) manage, supervise and otherwise deal with the Collateral; (v) take such
action as is necessary or desirable to maintain the perfection and priority of
the security interests and liens created or purported to be created by the Loan
Documents; and (vi) except as may be otherwise specifically restricted by the
terms hereof or of any other Loan Document, exercise all remedies given to the
Agent, the Lenders or the Issuing Banks with respect to the Collateral under the
Loan Documents relating thereto, applicable law or otherwise.
(c) Release of Collateral. (i) Each of the Agent, the Lenders and the
Issuing Banks hereby directs the Agent to release, in accordance with the terms
hereof, any Lien held by the Agent for the benefit of the Agents, the Lenders,
the Issuing Banks and the other Holders:
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(A) against all of the Collateral, upon final payment in full of the
Obligations (other than indemnities not then due) and termination hereof;
and
(B) against any part of the Collateral sold or disposed of by the
Borrower or any of its Subsidiaries, if such sale or disposition is
permitted by Section 9.02 (or permitted pursuant to a waiver or consent of
a transaction otherwise prohibited by such Section) and, if applicable, the
Net Cash Proceeds of such sale or disposition are applied in accordance
with Section 3.01(b) or, if not pursuant to such sale or disposition,
against Collateral with a book value of up to $10,000,000 if such release
is consented to by the Requisite Lenders or any part of the Collateral in
excess of such amount if such release is consented to by all the Lenders.
(ii) Each of the Lenders and the Issuing Banks hereby directs the Agent
to execute and deliver or file such termination and partial release statements
and do such other things as are necessary to release Liens to be released
pursuant to this Section 13.09(c) promptly upon the effectiveness of any such
release.
(d) Confirmation by Lenders. Without in any manner limiting the Agent's
authority to act without any specific or further authorization or consent by the
Lenders (as set forth in subsection (c) above), each Lender agrees to confirm in
writing, upon request by the Borrower, the authority to release Collateral
conferred upon the Agent under clauses (A) and (B) of subsection (c) above. So
long as no Event of Default is then continuing, upon receipt by the Agent of any
such written confirmation from the Lenders of the Agent's authority to release
any particular items or types of Collateral, and in any event upon any sale and
transfer of Collateral which is expressly permitted pursuant to the terms of
this Agreement, and upon at least five (5) Business Days' prior written request
by the Borrower, the Agent shall (and is hereby irrevocably authorized by the
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens upon such Collateral granted to the Agent for the benefit of Agent,
the Lenders, the Issuing Banks and the other Holders; provided, however, that
(i) the Agent shall not be required to execute any such document on terms which,
in the Agent's opinion, would expose the Agent to liability or create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
the Borrower or any of its Subsidiaries in respect of) all interests retained by
the Borrower and/or any of its Subsidiaries, including (without limitation) the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.
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(e) No Obligation. The Agent shall not have any obligation whatsoever
to any Lender or to any other Person to assure that the Collateral exists or is
owned by the Borrower or any of its Subsidiaries or is cared for, protected or
insured or has been encumbered or that the Liens granted to the Agent herein or
pursuant to the Loan Documents have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular
priority, or, subject to the third sentence of Section 13.01(a), to exercise at
all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent in this Section 13.09 or in any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, the Agent may act in any manner it
may deem appropriate, in its sole discretion, given the Agent's own interests in
the Collateral as one of the Lenders and that the Agent shall not have any duty
or liability whatsoever to any Lender.
(f) Certain Withdrawals from the Cash Collateral Account. The Agent may
from time to time, after the delivery of a Blockage Notice, withdraw, or permit
the Borrower to withdraw, such amounts from the Cash Collateral Account as the
Agent, in its sole discretion, deems necessary or desirable to preserve or
protect the Collateral or any portion thereof or to enhance the likelihood or
maximize the amount of repayment of the Loans and other Obligations up to an
amount not in excess of the greater of $5,000,000 or the amount (if any) by
which the aggregate amount of available funds on deposit in the Cash Collateral
Account exceeds the aggregate amount of the contingent and non-contingent
Obligations at such time (excluding indemnities not then due). The Agent shall
notify the Borrower and each Lender in writing of each such withdrawal, which
notice shall include a description of the purpose of such withdrawal.
ARTICLE XIV
MISCELLANEOUS
14.01. Assignments. (a) Assignments. No assignments or participations
of any Lender's rights or obligations hereunder shall be made except in
accordance with this Section 14.01. Each Lender may assign to one or more
Eligible Assignees all or a portion of its rights and obligations hereunder
(including all of its rights and obligations with respect to the A Term Loans, B
Term Loans, C Term Loans, the Revolving Loans and the Letters of Credit) in
accordance with the provisions of this Section 14.01.
(b) Limitations on Assignments. Each assignment by a Lender shall be
subject to the following conditions: (i) each assignment other than to a Lender
or an Affiliate of a Lender
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shall be approved by the Agent, which approval shall not be unreasonably
withheld; (ii) each such assignment shall be to an Eligible Assignee; (iii) each
such assignment shall be in an amount at least equal to $5,000,000, except if
the Eligible Assignee is a Lender or an Affiliate of Lender or if such
assignment shall constitute all the assigning Lender's interest hereunder; and
(iv) the parties to each such assignment shall execute and deliver to the Agent,
for its acceptance and recording in the Register, an Assignment and Acceptance.
Upon such execution, delivery, acceptance and recording in the Register, from
and after the effective date specified in each Assignment and Acceptance (which
shall not be prior to the date such assignment is recorded in the Register) and
agreed to by the Agent, (x) the assignee thereunder shall, in addition to any
rights and obligations hereunder held by it immediately prior to such effective
date, if any, have the rights and obligations hereunder that have been assigned
to it pursuant to such Assignment and Acceptance and shall, to the fullest
extent permitted by law, have the same rights and benefits hereunder as if it
were an original Lender hereunder and (y) the assigning Lender shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations hereunder (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of such assigning Lender's rights and
obligations hereunder, the assigning Lender shall cease to be a party hereto).
(c) The Register. The Agent shall maintain at its address referred to
in Section 14.08 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitment under each Loan of, and
principal amount of the Loans under each facility owing to, each Lender from
time to time and whether such Lender is an original Lender or the assignee of
another Lender pursuant to an Assignment and Acceptance (it being understood
that the Agent shall act as agent for the Borrower solely for the purpose of
recording the name and address of each Lender in the Register). The Register
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, (ii) the effective date and amount of each
Assignment and Acceptance delivered to and accepted by it and the parties
thereto, (iii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder or under the
Notes, and (iv) the amount of any sum received by the Agent from the Borrower or
any Guarantor hereunder and each Lender's share thereof. The Agent shall deliver
a statement of such account to the Borrower whenever an Assignment and
Acceptance is accepted by it and the parties hereto; provided, however, the
Agent shall not be obligated to
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deliver such statement more frequently than once a month. Each such statement
shall be deemed final, binding and conclusive upon the Borrower in all respects
as to all matters reflected therein (absent manifest error) unless the Borrower,
within thirty (30) days after the date such statement is delivered to the
Borrower, delivers to the Agent written notice of any objections (other than
objections as to the identity of the Lenders) which the Borrower may have to any
such statement. In that event, only those items expressly objected to in such
notice shall be deemed to be disputed by the Borrower. The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower and each of its Subsidiaries, the Agent and the Lenders
shall treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes hereof. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(d) Fee. Upon its receipt of an Assignment and Acceptance executed by
the assigning Lender and an Eligible Assignee and a processing and recordation
fee of $3,500 (payable by the assigning Lender or the assignee, as shall be
agreed between them), the Agent shall, if such Assignment and Acceptance has
been completed and is in compliance herewith and in substantially the form of
Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower and the other Lenders.
(e) Information Regarding the Borrower. Any Lender may, in connection
with any assignment or participation or proposed assignment or participation
pursuant to this Section 14.01, disclose to the assignee or participant or
proposed assignee or participant any information relating to the Borrower or its
Subsidiaries furnished to such Lender by the Agent or by or on behalf of the
Borrower; provided that, prior to any such disclosure, such assignee or
participant or proposed assignee or participant shall agree (for the Borrower's
benefit) to preserve in accordance with Section 14.20 the confidentiality of any
confidential information described therein.
(f) Lenders' Creation of Security Interests. Notwithstanding any other
provision set forth herein, any Lender may at any time create a security
interest in all or any portion of its rights hereunder (including, without
limitation, Obligations owing to it and Notes held by it) in favor of any
Federal Reserve bank in accordance with Regulation A.
(g) Assignments by an Issuing Bank. If any Issuing Bank ceases to be a
Lender hereunder by virtue of any assignment made pursuant to this Section
14.01, then, as of the effective date of such cessation, such Issuing Bank's
obligations to issue
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Letters of Credit pursuant to Section 2.04 shall terminate and such Issuing Bank
shall be an Issuing Bank hereunder only with respect to outstanding Letters of
Credit issued prior to such date.
(h) Participations. Each Lender may sell participations to one or more
other financial institutions in or to all or a portion of its rights and
obligations under and in respect of any and all facilities hereunder (including,
without limitation, all or a portion of any or all of its Commitments hereunder
and the Loans owing to it and its undivided interest in the Letters of Credit);
provided, however, that (i) such Lender's obligations hereunder (including,
without limitation, its Commitments hereunder) shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the Borrower, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations hereunder and (iv) such
participant's rights to agree or to restrict such Lender's ability to agree to
the modification, waiver or release of any of the terms of the Loan Documents or
to the release of any Collateral covered by the Loan Documents, to consent to
any action or failure to act by any party to any of the Loan Documents or any of
their respective Affiliates, or to exercise or refrain from exercising any
powers or rights which any Lender may have under or in respect of the Loan
Documents or any Collateral, shall be limited to the right to consent to (A)
reduction of the principal of, or rate or amount of interest on the Loans(s)
subject to such participation (other than by the payment or prepayment thereof),
(B) postponement of any scheduled date for any payment of principal of, or
interest on, the Loan(s) subject to such participation (except with respect to
any modifications of the application provisions relating to the prepayments of
Loans and other Obligations) and (C) release of any guarantor (other than in
accordance with the proviso to the first sentence of Section 12.09) of the
Obligations or all or any portion of the Collateral except as provided in
Section 13.09(c). No holder of a participation in all or any part of the Loans
shall be a "Lender" or a "Holder" for any purposes hereunder by reason of such
participation; provided, however, that each holder of a participation shall have
the rights of a Lender (including any right to receive payment) under Sections
3.03, 3.04, 4.01(f), 4.02(d), 4.02(f), 13.05, 14.02 and 14.05; provided,
however, that all requests for any such payments shall be made by a participant
through the Lender granting such participation. The right of each holder of a
participation to receive payment under Sections 3.03, 3.04, 4.01(f), 4.02(d),
4.02(f), 13.05, 14.02 and 14.05 shall be limited to the lesser of (i) the
amounts actually incurred by such holder for which payment is provided under
said Sections and (ii) the amounts that would have been payable under said
Sections by the applicable Borrower to the Lender granting
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the participation in respect of the participated interest to such holder had
such participation not been granted.
(i) Payment to Participants. Anything herein to the contrary
notwithstanding, in the case of any participation, all amounts payable by the
Borrower under the Loan Documents shall be calculated and made in the manner and
to the parties required hereby as if no such participation had been sold.
14.02. Expenses.
(a) Generally. The Borrower agrees upon demand to pay, or reimburse the
Agent for, all of the Agent's out-of-pocket internal and external audit, legal,
appraisal, valuation, filing, document duplication and reproduction and
investigation expenses and for all other out-of-pocket costs and expenses of
every type and nature (including, without limitation, the reasonable fees,
expenses and disbursements of the Agent's counsel, Sidley & Austin, local legal
counsel, auditors, accountants, appraisers, printers, insurance and
environmental advisers, and other consultants and agents and syndication fees
(including printing, distribution and bank meetings)), incurred by the Agent in
connection with (A) the Agent's audit and investigation of the Borrower and the
Borrower's Subsidiaries in connection with the preparation, negotiation, and
execution of the Loan Documents (including, without limitation, the review of
the issuance of the Subordinated Notes and the Subordinated Note Documents) and
the Agent's periodic audits of the Borrower or the Borrower's Subsidiaries; (B)
the preparation, negotiation, execution and interpretation hereof (including,
without limitation, the satisfaction or attempted satisfaction of any of the
conditions set forth in Article V), the other Loan Documents and any proposal
letter or commitment letter issued in connection therewith and the making of the
Loans hereunder; (C) the creation, perfection or protection of the Liens under
the Loan Documents (including, without limitation, any reasonable fees and
expenses for local counsel in various jurisdictions); (D) the ongoing
administration hereof and of the Loans, including consultation with attorneys in
connection therewith and with respect to the Agent's rights and responsibilities
hereunder and under the other Loan Documents; (E) the protection, collection or
enforcement of any of the Obligations or the enforcement of any of the Loan
Documents; (F) the commencement, defense or intervention in any court proceeding
relating in any way to the Obligations, the Property, the Borrower, any of the
Borrower's Subsidiaries, this Agreement or any of the other Loan Documents; (G)
the response to, and preparation for, any subpoena or request for document
production with which the Agent is served or deposition or other proceeding in
which the Agent is called to testify, in each case, relating in any way to the
Obligations, the Property, the Borrower, any of the Borrower's Subsidiaries,
this Agreement or any of the other Loan Documents; and (H) any
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amendments, consents, waivers, assignments, restatements, or supplements to any
of the Loan Documents and the preparation, negotiation, and execution of the
same.
(b) Other Expenses. The Borrower further agrees to pay or reimburse the
Agent, the Issuing Banks and the Lenders upon demand for all out-of-pocket costs
and expenses, including, without limitation, reasonable attorneys' fees
(including allocated costs of internal counsel and costs of settlement),
incurred by the Agent, any Issuing Bank or any Lender (i) in enforcing any Loan
Document or Obligation or any security therefor or exercising or enforcing any
other right or remedy available by reason of any Event of Default; (ii) in
connection with any refinancing or restructuring of the credit arrangements
provided hereunder in the nature of a "work-out" or in any insolvency or
bankruptcy proceeding; (iii) in commencing, defending or intervening in any
litigation or in filing a petition, complaint, answer, motion or other pleadings
in any legal proceeding relating to the Obligations, the Property, the Borrower
or any of the Borrower's Subsidiaries and related to or arising out of the
transactions contemplated hereby or by any of the other Transaction Documents;
and (iv) in taking any other action in or with respect to any suit or proceeding
(bankruptcy or otherwise) described in clauses (i) through (iii) above.
14.03. Indemnity. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Agent and each and all of the Lenders and
Issuing Banks and each of their respective Affiliates, and each of such Agent's,
Lender's, Issuing Bank's or Affiliate's respective officers, directors,
employees, attorneys and agents (including, without limitation, those retained
in connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article V) (collectively, the "Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
judgments, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for such Indemnitees), joint or several, imposed on, incurred by, or
asserted or awarded against such Indemnitees in any manner relating to or
arising out of or in connection with (a) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto and thereto of their
respective obligations thereunder or the consummation of the transactions
contemplated hereby and thereby, (b) the use of the proceeds of the Loans or the
use of any Letter of Credit or (c) any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party thereto
or the preparation of any defense with respect thereto, in each case arising out
of or in connection with (x) this Agreement, the other Loan Documents or any of
the Transaction Documents or any
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act, event or transaction related or attendant thereto or to any of the other
transactions contemplated hereby or thereby, whether or not such Indemnitee is a
party thereto and whether or not such transactions are consummated, or (y) any
Liabilities and Costs under Environmental, Health or Safety Requirements of Law
arising from or in connection with the past, present or future operations of the
Borrower, the Borrower's Subsidiaries or any of their respective predecessors in
interest, or, the past, present or future environmental, health or safety
condition of any respective Property of the Borrower or the Borrower's
Subsidiaries, the presence of asbestos-containing materials at any respective
Property of the Borrower or such Subsidiaries or the Release or threatened
Release of any Contaminant into the environment (collectively, the "Indemnified
Matters"); provided, however, the Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Matters resulting from the
willful misconduct or gross negligence of such Indemnitee, as determined in a
final, non-appealable judgment by a court of competent jurisdiction.
Notwithstanding anything herein to the contrary, the Borrower understands and
hereby agrees that its obligation to indemnify pursuant to this Section 14.03
shall apply in the event of the sole, concurrent or contributory negligence of
any Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
14.04. Change in Accounting Principles. If any change in the accounting
principles used in the preparation of the most recent financial statements
referred to in Section 7.01 is hereafter required or permitted by the rules,
regulations, pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) and are adopted by the Borrower with
the agreement of its independent certified public accountants and such change
results in a change in the method of calculation of any of the covenants,
standards or terms found in Article IX and Article X, the parties hereto agree
to enter into negotiations in order to amend such provisions so as to equitably
reflect such change with the desired result that the criteria for evaluating
compliance with such covenants, standards and terms by the Borrower shall be the
same after such change as if such change had not been made; provided, however,
no change in GAAP that would affect the method of calculation of any of the
covenants, standards or terms shall be given effect in such calculations until
such provisions are amended, in a manner satisfactory to the Requisite Lenders
and the Borrower, to so reflect such change in accounting principles.
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14.05. Setoff. In addition to any Liens granted under the Loan
Documents and any rights now or hereafter granted under applicable law, upon the
occurrence and during the continuance of any Event of Default, each Lender, each
Issuing Bank and any Affiliate of any Lender or Issuing Bank is hereby
authorized by the Borrower at any time or from time to time, without notice to
any Person (any such notice being hereby expressly waived) to set off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, indebtedness evidenced by certificates of deposit, whether
matured or unmatured (but not including trust accounts)) and any other
Indebtedness at any time held or owing by such Lender, Issuing Bank or any of
their Affiliates to or for the credit or the account of the Borrower against and
on account of the Obligations of the Borrower to such Lender, Issuing Bank or
any of their Affiliates, including, but not limited to, all Loans and
Reimbursement Obligations and all claims of any nature or description arising
out of or in connection herewith, irrespective of whether or not (i) such Lender
or Issuing Bank shall have made any demand hereunder or (ii) the Agent, at the
request or with the consent of the Requisite Lenders, shall have declared the
principal of and interest on the Loans and other amounts due hereunder to be due
and payable as permitted by Article XI and even though such Obligations may be
contingent or unmatured.
14.06. Ratable Sharing. The Lenders and the Issuing Banks agree among
themselves that, except as otherwise expressly provided in any Loan Document,
(i) with respect to all amounts received by them which are applicable to the
payment of the Obligations (excluding (x) the fees described in Sections
2.04(g), 3.03, 3.04, 4.01(f) and 4.02 and (y) and amounts so received in respect
of Currency Agreements and/or Interest Rate Contracts) equitable adjustment
shall be made so that, in effect, all such amounts shall be shared among them
ratably in accordance with their Pro Rata Shares, whether received by voluntary
payment, by the exercise of the right of setoff or banker's lien, by
counterclaim or cross-action or by the enforcement of any or all of such
Obligations or the Collateral, (ii) if any of them shall by voluntary payment or
by the exercise of any right of counterclaim, setoff, banker's lien or
otherwise, receive payment of a proportion of the aggregate amount of such
Obligations held by it which is greater than the amount which such Lender is
entitled to receive hereunder, the Lender receiving such excess payment shall
purchase, without recourse or warranty, an undivided interest and participation
(which it shall be deemed to have done simultaneously upon the receipt of such
payment) in such Obligations owed to the others so that all such recoveries with
respect to such Obligations shall be applied ratably in accordance with their
Pro Rata Shares; provided, however, that if all or part of such excess payment
received by the purchasing party is thereafter recovered from it, those
purchases shall be rescinded and the purchase prices paid for such participation
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shall be returned to such party to the extent necessary to adjust for such
recovery, but without interest except to the extent the purchasing party is
required to pay interest in connection with such recovery. The Borrower agrees
that any Lender so purchasing a participation from another Lender pursuant to
this Section 14.06 may, to the fullest extent permitted by law, exercise all its
rights of payment (including, subject to Section 14.05, the right of setoff)
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
14.07. Amendments and Waivers. (a) General Provisions. Unless otherwise
provided herein, no amendment or modification of any provision hereof shall be
effective without the written agreement of the Requisite Lenders and the
Borrower (and, in the case of an amendment or modification of Article XII, each
of the Guarantors), and no termination or waiver of any provision hereof, or
consent to any departure by the Borrower therefrom, shall be effective without
the written concurrence of the Requisite Lenders, which the Requisite Lenders
shall have the right to grant or withhold in their sole discretion.
(b) Amendments, Consents and Waivers by Affected Lenders. Any
amendment, modification, termination, waiver or consent hereunder which has the
effect of
(i) waiving any of the conditions with respect to the making of the
Loans specified in Section 5.01 or 5.02 (except with respect to a condition
based upon another provision hereof, the waiver of which requires only the
concurrence of the Requisite Lenders),
(ii) increasing the amount of any of the A Term Loan Commitments, B
Term Loan Commitments, C Term Loan Commitments or the Revolving Credit
Commitments of any Lender,
(iii) reducing the principal of, rate or amount of interest on the
Loans, Reimbursement Obligations or any fees or other amounts payable to
any Lender or changing the application of any repayment or prepayment of
the Loans (including, without limitation, in each case, amounts so payable
pursuant to Sections 3.01(b) and (c)), or
(iv) extending the Revolving Credit Termination Date, or otherwise
postponing any date on which any scheduled payment of principal of, or
interest on, the Loans, Reimbursement Obligations or any fees payable to
any Lender
shall be effective only by a written agreement, signed by the Borrower and each
Lender affected directly or indirectly thereby.
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(c) Amendment, Consents and Waivers by all Lenders. Notwithstanding the
foregoing, any amendment, modification, termination, waiver or consent with
respect to any of the following shall be effective only by a written agreement,
signed by each Lender: (a) release of any guarantor of the Obligations (except
in accordance with the proviso to the first sentence of Section 12.09) or all or
any portion of the Collateral (except as provided in Section 13.09(c)), (b)
change in the aggregate Pro Rata Share of the Lenders which shall be required
for the Lenders or any of them to take action hereunder, (c) change in the
definition of Requisite Lenders or (d) amendment of Sections 13.09(c), 14.06,
14.16 or this Section 14.07. The Agent may, but shall have no obligation to,
with the written concurrence of any Lender, execute amendments, modifications,
waivers or consents on behalf of that Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on the Borrower in any case shall entitle
the Borrower to any other or further notice or demand in similar or other
circumstances. Notwithstanding anything to the contrary contained in this
Section 14.07, no amendment, modification, waiver or consent shall affect the
rights or duties of the Agent hereunder or under the other Loan Documents,
including this Article XIV, unless made in writing and signed by the Agent in
addition to the Lenders required above to take such action. Notwithstanding
anything herein to the contrary, in the event that the Borrower shall have
requested, in writing, that any Lender agree to an amendment, modification,
waiver or consent with respect to any particular provision or provisions hereof,
and such Lender shall have failed to state, in writing, that it either agrees or
disagrees (in full or in part) with all such requests (it being understood that
any such statement of agreement may be subject to satisfactory documentation and
other conditions specified in such statement) within thirty (30) days of such
request, then such Lender hereby irrevocably authorizes the Agent to agree or
disagree, in full or in part, and in the Agent's sole discretion, to such
requests on behalf of such Lender as such Lender's attorney-in-fact and to
execute and deliver any writing approved by the Agent which evidences such
agreement as such Lender's duly authorized agent for such purposes.
14.08. Notices. Unless otherwise specifically provided herein, any
notice, consent or other communication herein required or permitted to be given
shall be in writing and may be personally served, telecopied, or sent by courier
service and shall be deemed to have been given when delivered in person or by
courier service, or upon receipt of a telecopy. Notices to the Agent pursuant to
Articles II, III or XII shall not be effective until received by the Agent. For
the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section 14.08) shall be as set
forth below each party's name on the signature pages hereof or
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the signature page of any applicable Assignment and Acceptance, or, as to each
party, at such other address as may be designated by such party in a written
notice to all of the other parties hereto.
14.09. Survival of Warranties and Agreements. All representations and
warranties made herein and all obligations of the Borrower in respect of taxes,
indemnification and expense reimbursement shall survive the execution and
delivery hereof and of the other Loan Documents, the making and repayment of the
Loans, the issuance and discharge of Letters of Credit hereunder and the
termination hereof and shall not be limited in any way by the passage of time or
occurrence of any event and shall expressly cover time periods when the Agent,
any of the Issuing Banks or any of the Lenders may have come into possession or
control of any of the Borrower's or the Borrower's Subsidiaries' Property.
14.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of the Agent, any Lender or any Issuing Bank in the
exercise of any power, right or privilege under any of the Loan Documents shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under the
Loan Documents are cumulative to and not exclusive of any rights or remedies
otherwise available.
14.11. Marshalling; Payments Set Aside. None of the Agent, any Lender
or any Issuing Bank shall be under any obligation to marshall any assets in
favor of the Borrower or any other party or against or in payment of any or all
of the Obligations. To the extent that the Borrower makes a payment or payments
to the Agent, the Lenders or the Issuing Banks or any of such Persons receives
payment from the proceeds of the Collateral or exercise their rights of setoff,
and such payment or payments or the proceeds of such enforcement or setoff or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party, then to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied, and all Liens, right and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
14.12. Severability. In case any provision in or obligation hereunder
or under the other Loan Documents shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
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jurisdiction, shall not in any way be affected or impaired thereby.
14.13. Headings. Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof or be given
any substantive effect.
14.14. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH
INTERNAL LAW OF THE STATE OF NEW YORK.
14.15. Limitation of Liability. No claim may be made by the Borrower,
any Lender, any Issuing Bank, the Agent or any other Person against the Agent,
any other Issuing Bank or any other Lender or the Affiliates, directors,
officers, employees, attorneys or agents of any of them for any special,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated hereby, or any act, omission or event occurring in connection
therewith; and the Borrower, each Lender, each Issuing Bank and the Agent hereby
waives, releases and agrees not to sue upon any such claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
14.16. Successors and Assigns. This Agreement and the other Loan
Documents shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and permitted assigns of the Lenders and the Issuing Banks. The
rights hereunder and the interest herein of any Guarantor or the Borrower may
not be assigned without the written consent of all Lenders. Any attempted
assignment without such written consent shall be void.
14.17. Certain Consents and Waivers.
(A) PERSONAL JURISDICTION. (I) EACH OF THE AGENT, THE LENDERS, THE
ISSUING BANKS, EACH GUARANTOR AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY
COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY
ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT,
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH
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FEDERAL COURT. EACH OF THE GUARANTORS AND THE BORROWER IRREVOCABLY DESIGNATES
AND APPOINTS CT CORPORATION SYSTEM AT 1633 BROADWAY, NEW YORK, NEW YORK 10019,
AS ITS RESPECTIVE PROCESS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS
IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED
TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE AGENT, THE
LENDERS, THE ISSUING BANKS, THE GUARANTORS AND THE BORROWER AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. EACH OF THE GUARANTORS AND THE BORROWER WAIVES IN ALL DISPUTES
ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(II) EACH OF THE GUARANTORS AND THE BORROWER AGREES THAT THE AGENT
SHALL HAVE THE RIGHT TO PROCEED AGAINST SUCH GUARANTOR, THE BORROWER OR THEIR
RESPECTIVE PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE AGENT, THE ISSUING
BANKS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE AGENT, ANY ISSUING BANK OR ANY LENDER. EACH OF THE GUARANTORS AND THE
BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE AGENT, ANY ISSUING BANK OR ANY LENDER MAY COMMENCE A PROCEEDING
DESCRIBED IN THIS SECTION.
(B) SERVICE OF PROCESS. EACH OF THE GUARANTORS AND THE BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE
BORROWER'S AND/OR SUCH GUARANTOR'S NOTICE ADDRESS SPECIFIED PURSUANT TO SECTION
14.08, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. EACH
OF THE GUARANTORS AND THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE AGENT TO BRING PROCEEDINGS AGAINST THE BORROWER AND/OR ANY
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
(C) WAIVER OF JURY TRIAL. EACH OF THE AGENT, THE ISSUING BANKS, THE
LENDERS, THE GUARANTORS AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
14.18. Counterparts; Effectiveness; Inconsistencies. This Agreement and
any amendments, waivers, consents, or supple- ments hereto may be executed in
counterparts, each of which when
-162-
<PAGE> 170
so executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Agreement and
each of the other Loan Documents shall be construed to the extent reasonable to
be consistent one with the other, but to the extent that the terms and
conditions hereof are actually inconsistent with the terms and conditions of any
other Loan Document, this Agreement shall govern.
14.19. Limitation on Agreements. All agreements between the Borrower,
the Agent, each Lender and each Issuing Bank in the Loan Documents are hereby
expressly limited so that in no event shall any of the Loans or other amounts
payable by the Borrower under any of the Loan Documents be directly or
indirectly secured (within the meaning of Regulation U) by Margin Stock.
14.20. Confidentiality. Subject to Section 14.01(e), the Lenders and
the Issuing Banks shall hold all nonpublic information obtained pursuant to the
requirements hereof and identified as such by the Borrower in accordance with
such Lender's or such Issuing Bank's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking or other business practices and in any event may make disclosure
reasonably required by a bona fide offeree or assignee (or participant) in
connection with the contemplated assignment, transfer (or participation), or as
required or requested by any Governmental Authority or representative thereof,
or pursuant to legal process, or to its accountants, lawyers and other advisors,
and shall require any such offeree or assignee (or participant) to agree (and
require any of its offerees, assignees or participants to agree) to comply with
this Section 14.20. In no event shall any Lender or any Issuing Bank be
obligated or required to return any materials furnished by the Borrower;
provided, however, each offeree shall be required to agree that if it does not
become a assignee (or participant) it shall return all materials furnished to it
by the Borrower in connection herewith.
14.21. Entire Agreement. This Agreement, taken together with all of the
other Loan Documents embodies the entire agreement and understanding among the
parties hereto and supersedes the commitment letter dated March 27, 1996 from
Citicorp and Citicorp Securities, Inc. and accepted and agreed to by the
Borrower (but excluding the Letter Agreement which is incorporated therein by
reference) and all prior agreements and understandings, written and oral,
relating to the subject matter hereof.
-163-
<PAGE> 171
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first above written.
IMO INDUSTRIES INC.
By /s/ R.A. Derr II
------------------------------------
Name: R.A. Derr II
Title: Vice President and Treasurer
Notice Address:
Imo Industries Inc.
Princeton Pike Corporate Center
1009 Lenox Dr., Building Four West
P.O. Box 6550
Lawrenceville, New Jersey 08648-0550
Attn: Thomas J. Bird
Telecopier No. (609) 896-7633
Confirmation No. (609) 896-7600
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attn: Ronald F. Daitz, Esq.
Telecopier No. (212) 310-8007
Confirmation No. (212) 310-8000
S-1
<PAGE> 172
VARO INC.
By /s/ R.A. Derr II
------------------------------------
Name: R.A. Derr II
Title: Vice President and Treasurer
Notice Address:
Varo Inc.
Princeton Pike Corporate Center
1009 Lenox Dr., Building Four West
P.O. Box 6550
Lawrenceville, New Jersey 08648-0550
Attn: Thomas J. Bird
Telecopier No. (609) 896-7633
Confirmation No. (609) 896-7600
S-2
<PAGE> 173
WARREN PUMPS INC.
By /s/ T.J. Bird
------------------------------------
Name: T.J. Bird
Title: Executive Vice President
Notice Address:
Warren Pumps Inc.
Princeton Pike Corporate Center
1009 Lenox Dr., Building Four West
P.O. Box 6550
Lawrenceville, New Jersey 08648-0550
Attn: Thomas J. Bird
Telecopier No. (609) 896-7633
Confirmation No. (609) 896-7600
S-3
<PAGE> 174
CITICORP USA, INC.
as Agent, as Collateral Agent and as
a Lender and as an Issuing Bank
By /s/ Timothy L. Freeman
------------------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
CITIBANK, N.A.
as an Issuing Bank
By /s/ Timothy L. Freeman
------------------------------------
Name: Timothy L. Freeman
Title: Attorney-in-Fact
Notice Address for both Citicorp USA,
Inc. and Citibank, N.A.:
399 Park Avenue
New York, New York 10043
Attn: Imo Industries Inc. Loan
Officer
Telecopier No. (212) 793-1290
Confirmation No. (212) 559-4659
with a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attn: Daniel S. Dokos, Esq.
Telecopier No. (212) 906-2021
Confirmation No. (212) 906-2000
S-4
<PAGE> 175
SANWA BUSINESS CREDIT CORPORATION
By /s/ Peter L. Skavla
------------------------------------
Name: Peter L. Skavla
Title: Vice President
Notice Address:
Sanwa Business Credit Corporation
500 Glenpointe Centre West
Teaneck, NJ 07666-6802
Attn: Peter Skavla, Vice President
Telecopier No. (201) 836-4744
Confirmation No. (201) 836-4006
S-5
<PAGE> 176
BHF-BANK AKTIENGESELLSCHAFT
By /s/ David Fraenkel
------------------------------------
Name: David Fraenkel
Title: Vice President
By /s/ Linda Pace
------------------------------------
Name: Linda Pace
Title: Assistant Vice President
Notice Address:
BHF-Bank Aktiengesellschaft
590 Madison Avenue
New York, NY 10022-2540
Attn: Linda Pace
Telecopier No. (212) 756-5536
Confirmation No. (212) 756-5915
S-6
<PAGE> 177
LEHMAN COMMERCIAL PAPER INC.
By /s/ Dennis J. Dee
------------------------------------
Name: Dennis J. Dee
Title: Authorized Signatory
Notice Address:
Lehman Commercial Paper Inc.
3 World Financial Center, 10th Floor
New York, New York 10285-0800
Attn: Michele Swanson
Telecopier No. (212) 528-0819
Confirmation No. (212) 526-0330
S-7
<PAGE> 178
THE NIPPON CREDIT BANK LTD.,
NEW YORK BRANCH
By /s/ Barry S. Fein
------------------------------------
Name: Barry S. Fein
Title: Assistant Vice President
Notice Address:
The Nippon Credit Bank Ltd.,
New York Branch
245 Park Avenue, 30th Floor
New York, New York 10167
Attn: Barry S. Fein
Telecopier No. (212) 490-3895
Confirmation No. (212) 984-1261
S-8
<PAGE> 179
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Brian O'Leary
------------------------------------
Name: Brian O'Leary
Title: Vice President
By /s/ Sean Mounier
------------------------------------
Name: Sean Mounier
Title: First Vice President
Notice Address:
Compagnie Financiere de CIC et de
L'Union Europeenne
520 Madison Avenue, 37th floor
New York, New York 10022
Attn: Brian O'Leary
Telecopier No. (212) 715-4535
Confirmation No. (212) 715-4422
S-9
<PAGE> 180
FIRST SOURCE FINANCIAL LLP
By FIRST SOURCE FINANCIAL, INC. as
its Agent/Manager
By /s/ Gary L. Francis
------------------------------
Name: Gary L. Francis
Title: Senior Vice President
Notice Address:
First Source Financial LLP
2850 West Golf Road, 5th Floor
Rolling Meadows, IL 60008
Attn: Maureen Ault
Telecopier No. (847) 734-7910
Confirmation No. (847) 734-2041
S-10
<PAGE> 181
THE FIRST NATIONAL BANK OF BOSTON
as a Lender and as an Issuing Bank
By /s/ Maura Wadlinger
------------------------------------
Name: Maura Wadlinger
Title: Vice President
Notice Address:
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attn: Nancy Fuller
Telecopier No. (617) 434-6685
Confirmation No. (617) 434-5310
S-11
<PAGE> 182
TRANSAMERICA BUSINESS CREDIT CORPORATION
By /s/ Perry Vavoules
------------------------------------
Name: Perry Vavoules
Title: Vice President
Notice Address:
Transamerica Business Credit
Corporation
555 Theodore Fremd Avenue C-301
Rye, New York 10580
Attn: Peter F. Crispino
Telecopier No. (914) 921-0110
Confirmation No. (914) 925-7230
S-12
<PAGE> 183
PEARL STREET L.P.
By /s/ Stephen P. Hickey
------------------------------------
Name: Stephen P. Hickey
Title: Authorized Signer
Notice Address:
Pearl Street L.P.
c/o Goldman Sachs & Co.
85 Broad Street, 26th Floor
New York, New York 10004
Attn: Nancy Unrath
Telecopier No. (212) 902-3757
Confirmation No. (212) 902-4425
S-13
<PAGE> 184
THE CHASE MANHATTAN BANK, N.A.
as a Lender and as an Issuing Bank
By /s/ Michael Evans
------------------------------------
Name: Michael Evans
Title: Vice President
Notice Address:
The Chase Manhattan Bank, N.A.
c/o Chase National Corporate
Services, Inc.
777 Terrace Avenue, 3rd Floor
Hasbrouck Heights, NJ 07604
Attn: Peter M. Fitzsimmons
Telecopier No. (201) 288-8231
Confirmation No. (201) 393-7270
S-14
<PAGE> 185
ING CAPITAL ADVISORS, INC., as Agent
for Bank Syndication Account
By /s/ Kathleen A. Lenarcic
------------------------------------
Name: Kathleen A. Lenarcic
Title: Vice President & Portfolio
Manager
Notice Address:
ING Capital Advisors, Inc.
333 South Grand Avenue
Suite 400
Los Angeles, CA 90071
Attn: Kathy Lenarcic, Vice President
& Portfolio Manager
Telecopier No. (213) 626-6552
Confirmation No. (213) 621-9063
S-15
<PAGE> 186
PPM AMERICA, INC.
By: PPM AMERICA, INC., as attorney-in-
fact, on behalf of Jackson
National Life Insurance Company
By /s/ Michael DiRe
---------------------------------
Name: Michael DiRe
Title: Vice President
Notice Address:
PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, IL 60606-1228
Attn: Private Placements - Michael
DiRe or Guy Petrelli
Telecopier No. (312) 634-0054
Confirmation No. (312) 634-2509/2561
S-16
<PAGE> 1
EXHIBIT 12 -- STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994* 1993* 1992* 1991*
--------------------------------------------------
EARNINGS (in thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
extraordinary items and cumulative
effect of change in accounting principle 12,029 184 (37,929) (24,846) (6,870)
Tax (Expense) Benefit 14,791 (1,790) (13,450) 14,315 4,103
Income (loss) from continuing operations before
taxes, extraordinary items and cumulative
effect of change in accounting principle (2,762) 1,974 (24,479) (39,161) (10,973)
Interest expense 25,860 29,168 33,341 38,186 38,390
Amortization of capitalized interest expense 183 160 440 423 325
Interest portion of rental expense 2,439 2,721 2,676 3,257 3,405
--------------------------------------------------
EARNINGS 25,720 34,023 11,978 2,705 31,147
==================================================
FIXED CHARGES
Interest Expense 25,860 29,168 33,341 38,186 38,390
Plus - Interest capitalized during the period 2 182 134 740 988
Interest portion of rental expense 2,439 2,721 2,676 3,257 3,405
--------------------------------------------------
FIXED CHARGES 28,301 32,071 36,151 42,183 42,783
==================================================
Ratio of Earnings to fixed charges (a) -- 1.06 -- -- --
</TABLE>
* Reclassified to conform to 1995 presentation
(a) Earnings were insufficient to cover fixed charges in the
amounts of $2.6 million, $24.2 million, $39.5 million and $11.6
million in 1995, 1993, 1992 and 1991, respectively.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the inclusion of our reports dated February 15, 1996 (except for Note 15, as to
which the date is April 29, 1996) in the Registration Statement (Form S-4) and
related Prospectus of Imo Industries Inc. dated May 10, 1996 for the
registration of $155,000,000 of 11 3/4% Senior Subordinated Notes Due 2006.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Princeton, New Jersey
May 7, 1996
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
--------------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
IBJ SCHRODER BANK & TRUST COMPANY
ONE STATE STREET
NEW YORK, NEW YORK 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
IMO INDUSTRIES INC.
(Exact name of obligor as specified in its charter)
Delaware 21-0733751
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1009 Lenox Drive, Building Four West
Lawrenceville, New Jersey 08648
(Address of principal executive offices) (Zip code)
---------------
11 3/4% Senior Subordinated Notes due 2006
(Title of indenture securities)
---------------
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Two Rector Street, New
York, New York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District, 33 Liberty
Street, New York, New York
(b) Whether it is authorized to exercise corporate
trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of any
such default.
None
(b) If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding
series of securities under the indenture, state whether there
has been a default under any such indenture or series,
identify the indenture or series affected, and explain the
nature of any such default.
None
2
<PAGE> 3
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22- 18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE> 4
NOTE
----
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its directors
or officers, the trustee has relied upon information furnished to it by
the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee as
indicated in Item 13, the obligor is not in default under any indenture
under which the applicant is trustee.
4
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 7th day
of May, 1996.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Irene Teutonico
-----------------------
Irene Teutonico
Assistant Vice President
5
<PAGE> 6
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issue by IMO
INDUSTRIES INC. of its 11 3/4% Senior Subordinated Notes due 2006, we hereby
consent that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Irene Teutonico
-----------------------
Irene Teutonico
Assistant Vice President
Dated: May 7, 1996
6
<PAGE> 7
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
ASSETS
<S> <C> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin ............................................. $ 22,187
Interest-bearing balances......................................................................... $ 160,833
Securities: Held to Maturity....................................................................... $ 167,109
Available-for-sale............................................................... $ 27,914
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and in
IBFs:
Federal Funds sold................................................................................ $ 179,394
Securities purchased under agreements to resell................................................... $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income........................................ $1,645,286
LESS: Allowance for loan and lease losses....................................... $ 52,532
LESS: Allocated transfer risk reserve........................................... $ -0-
Loans and leases, net of unearned income, allowance, and reserve.................................. $1,592,754
Assets held in trading accounts....................................................................... $ 220
Premises and fixed assets............................................................................. $ 7,349
Other real estate owned............................................................................... $ 397
Investments in unconsolidated subsidiaries and associated companies................................... $ -0-
Customers' liability to this bank on acceptances outstanding.......................................... $ 684
Intangible assets..................................................................................... $ -0-
Other assets.......................................................................................... $ 66,374
TOTAL ASSETS.......................................................................................... $2,225,215
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices...................................................................................$ 623,883
Noninterest-bearing ............................................................$213,535
Interest-bearing................................................................$410,348
In foreign offices, Edge and Agreement subsidiaries, and IBFs.........................................$ 830,812
Noninterest-bearing.............................................................$ 19,160
Interest-bearing................................................................$811,652
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal Funds purchased...............................................................................$ 38,000
Securities sold under agreements to repurchase........................................................$ -0-
Demand notes issued to the U.S. Treasury..................................................................$ 118
Trading Liabilities.......................................................................................$ 135
Other borrowed money:
a) With original maturity of one year or less.........................................................$ 453,347
b) With original maturity of more than one year.......................................................$ -0-
Mortgage indebtedness and obligations under capitalized leases............................................$ -0-
Bank's liability on acceptances executed and outstanding..................................................$ 684
Subordinated notes and debentures.........................................................................$ -0-
Other liabilities.........................................................................................$ 74,052
TOTAL LIABILITIES.........................................................................................$2,021,031
Limited life preferred stock and related surplus..........................................................$ -0-
<CAPTION>
EQUITY CAPITAL
<S> <C>
Perpetual preferred stock.................................................................................$ -0-
Common Stock..............................................................................................$ 29,649
Surplus...................................................................................................$ 217,008
Undivided profits and capital reserves....................................................................$ (42,438)
Plus: Net unrealized gains (losses) on marketable equity securities....................................$ (35)
Cumulative foreign currency translation adjustments.......................................................$ -0-
TOTAL EQUITY CAPITAL......................................................................................$ 204,184
TOTAL LIABILITIES AND EQUITY CAPITAL......................................................................$2,225,215
</TABLE>
